Cost-Benefit Analysis: 6th Edition (Paperback) book cover

Cost-Benefit Analysis

6th Edition

By E.J. Mishan, Euston Quah


424 pages | 58 B/W Illus.

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Cost-benefit analysis (CBA) is the systematic and analytical process of comparing benefits and costs in evaluating the desirability of a project or programme – often of a social nature. It attempts to answer such questions as whether a proposed project is worthwhile, the optimal scale of a proposed project, and the relevant constraints. CBA is fundamental to government decision making and is established as a formal technique for making informed decisions on the use of society’s scarce resources.

This timely 6th edition of the classic Cost-Benefit Analysis text continues to build on the successful approach of previous editions, with lucid explanation of key ideas, simple but effective expository short chapters, and an appendix on various useful statistical and mathematical concepts and derivatives. The book examines important developments in the discipline, with relevant examples and illustrations as well as new and expanded chapters which build upon standard materials on CBA. Highlights include;

  • updated historical background of CBA
  • extended non-market goods valuation methods
  • the impact of uncertainty
  • evaluation of programmes and services
  • behavioural economics
  • decision rules and heuristics
  • CBA and regulatory reforms
  • CBA in developed and developing countries
  • value of household production
  • other topics frequently encountered in CBA, such as costs of diseases and air pollution, and value of statistical life

This book is a valuable source and guide to international funding agencies, governments, interested professional economists and senior undergraduate and graduate students.

The text is fully supported by a companion website, which includes discussion questions and PowerPoint slides for each chapter.


“Cost benefit analysis is as important as ever in assessing projects, whether in private business, transportation, health and agriculture, or urban and regional planning. This book will be of great use to students, economists, business people and government planners. A welcome new edition from the maestro, Euston Quah, and a tribute to his late coauthor, Ezra Mishan.” - W. Brian Arthur, Center for Advanced Study in the Behavioral Sciences, Stanford University, USA.

“In this 6th edition of his classic treatise, Cost-Benefit Analysis, Professor Euston Quah provides an up-to-date rendering of the fundamental concepts that constitute the foundation of this important analytical tool, as well as the essential empirical methods, ranging from the basics of discounting to the latest methods of valuing externalities. This book can function as a comprehensive text in an appropriate college course, and as a key reference for practitioners. As such, it belongs on the shelf of scholars, policy analysts, and policy makers.” - Professor Robert N. Stavins, A. J. Meyer Professor of Energy and Economic Development at Harvard University, USA.

“Building on the earlier eminent work with E.J. Mishan, the sixth newly updated edition of Euston Quah’s continues to improve what has been referred to as a classic work in Cost Benefit analysis. It is a very important book for both practitioners and academics. I strongly recommend it as a reference book for all of us interested in public policy.” - Richard L. Sandor, Aaron Director Lecturer at Ronald Coase and Richard Sandor Institute of Law and Economics of the University of Chicago, USA.

“This timely 6th edition builds on the success of previous editions. The key economic tools are lucidly explained and the new themes explored. The case studies are up-to-date and cover a wide range of potential applications. It will be an indispensable source and guide to government and international agencies as well as to students and professional economists.” - Professor Cheng Hsiao, Former Editor of the Journal of Econometrics and Professor of Economics at University of Southern California, USA.

“Increasingly, calculations of gains and losses if made for communities and societies have to take into account a contextualized and scale-sensitive economic order. This 6th updated edition offers an excellent guide by integrating investment criteria, uncertainty and frequently encountered issues in the actual use of CBA while examining the continued validity of key concepts, the limitations of the criteria used and the consistency of techniques. It is highly recommended to everyone making informed decisions when resources are scarce.” - Professor Helga Nowotny, Former President of the European Research Council.

“As a text, Mishan and Quah’s Cost-Benefit Analysis shows the intuition of how to use economics as it instructs how to do CBA. As a reference, from the first edition it has been within easy reach of my desk.” - Professor Jack L. Knetsch, Emeritus Professor of Economics at Simon Fraser University, Canada.

“Cost-Benefit analysis is the most well known word in economics. However, it is not deeply understood what and how to measure and what kind of conditions the analysis be applied. The analysis can be used in many different projects not only to public and private projects but also to our daily lives. Economists often discuss the cost-benefits, however engineers and medical doctors have to pay attention to cost-benefit analysis results. Otherwise, various policies which may incur huge costs would be proposed and cost of burden to the general public may be very high in the future. This book explains very simply the essence of cost-benefit analysis and its applications in many different areas. The book is recommended not only to students in economics and business, but also to a general audience who wish to understand public decision-making. This book will help you think and make better decisions in your daily life.” - Professor Naoyuki Yoshino, Dean/CEO of Asian Development Bank Institute, Japan, and Professor Emeritus of Economics at Keio University, Japan.

“Cost-Benefit Analyses have seen a revival during the last years. This book is a must-have for all researchers and policy-makers interested in taking measures to solve important problems like global climate change, avoiding a digital divide, making people behave more sustainably etc. Every measure comes along with costs and benefits. This book gives theoretical background and practical advice on how to assess and counterbalance them in order to make the resource use highly efficient.” - Professor Renate Schubert, Professor of Economics and Associate Vice President of ETH Zurich, Switzerland.

Table of Contents


Scope and method

1 Brief historical background to Cost-Benefit Analysis

2 What is Cost-Benefit Analysis?

3 Framework to Cost-Benefit Analysis


Basic concepts of benefits and costs

4 Measurements of consumer surplus

5 Consumer surplus when several prices change

6 Consumer surplus when other things change

7 Introduction to the compensating variation

8 Measurements of rent

9 Is producer surplus a rent?


Shadow prices and transfer payments

10 Introductory remarks

11 Opportunity cost of labour

12 Opportunity cost of unemployed labour

13 The additional benefits of using unemployed labour

14 The opportunity costs of imports

15 Transfer payments and double counting


External effects

16 Introduction to external effects

17 Adverse spillovers

18 Internalizing externalities

19 Evaluating spillovers

20 Compensating for environmental damage


Investment criteria

21 Introduction to investment criteria

22 Crude investment criteria

23 The discounted present value criterion

24 The internal rate of return

25 The alleged superiority of the discounted present value criterion compared with the internal rate of return criterion and the net benefit ratio

26 Investment criteria in an ideal capital market

27 Calculation of rates of return and of time preference

28 Critique of the discounted present value criterion (I)

29 Critique of the discounted present value criterion (II)

30 The normalized compounded terminal value criterion (I)

31 The normalized compounded terminal value criterion (II)

32 The Pareto criterion and generational time

33 Cost-Benefit Analysis and normative economics



34 Risk and certainty equivalence

35 Decision rules and heuristics (I)

36 Decision rules and heuristics (II)

37 How practical are decision rules and heuristics?

38 Simple probability in decision making

39 Mixed strategies in decision making

40 Four additional strategems for coping with uncertainty


Topics frequently encountered in Cost-Benefit Analysis

41 Valuation issues and methods

42 Benefit transfers

43 Pair-wise comparison

44 Cost-Benefit Analysis and behavioural economics

45 Cost-Benefit Analysis in developing countries

46 The value of time

47 Measuring the benefits of recreational areas (I)

48 Travel Cost Method

49 Cost-Benefit Analysis and public health

50 The value of statistical life

51 Estimating the economic cost of air pollution on health

52 Economic cost of diseases

53 CBA and the problem of locating environmentally noxious facilities (NIMBYs) – an informal discussion


Further notes and advanced materials

54 A summing up

Appendix 1: Cost-Effectiveness Analysis

Appendix 2: The alleged contradiction of the Kaldor–Hicks criterion

Appendix 3: The problem of second–best

Appendix 4: Origins of the Hicksian measures of consumer surplus

Appendix 5: Marginal curve measures of consumer surplus

Appendix 6: The concept and measure of rent

Appendix 7: Marginal curve measures of rent

Appendix 8: The limited applicability of property rights

Appendix 9: Deadweight loss or love’s labour lost

Appendix 10: The value of human life

Appendix 11: The rate of time preference

Appendix 12: Selecting a set of investment projects for given political objectives

Appendix 13: Why Cost-Benefit Analysis is useful for regulatory reform

Appendix 14: Valuing Household Production

About the Authors

E.J. Mishan was Professor of Economics at the London School of Economics, UK, from 1956-1977.

Euston Quah is Albert Winsemius Chair Professor of Economics at Nanyang Technological University, Singapore.

Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Decision-Making & Problem Solving
BUSINESS & ECONOMICS / Economics / Microeconomics
BUSINESS & ECONOMICS / Economics / General