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ANALYSIS
“It is best to think of the cost-benefit approach as a way
of organizing thought rather than as a substitute for it.”
— Michael Drummond
Cost-Benefit Analysis
E(B) = i prob(B=bi) bi
where
prob(B=bi) is the probability that the benefit is worth $ bi .
Knee Injury
That is, if
$50 will occur with probability 0.6,
$100 will occur with probability 0.2, and
$150 will occur with probability 0.2,
No Treatment = 25.5%
With Zidovudine Treatment = 8.3%
MSB = d TSB/d Q
MSC = d TSC/d Q
Q = quantity of a publicly provided good or service
PV = F/(1 + r),
where F is a fixed sum of money to be received next year.
Discount Rate
Disadvantages.