What Is a Social Cost and Benefit Analysis?

Erin J. Hill

A social cost and benefit analysis is involves determining the overall benefits and costs for a specific action or project. These analyses are usually carried out by organizations which have a profound impact on a wide base of social groups, primarily governments on both the local and national level. Financial cost is not the measure by which a social cost and benefit analysis is based. The positive and negative implications actions may have on the public at large may also be considered "cost" when analyzing the pros and cons of any given situation.

Woman with hand on her hip
Woman with hand on her hip

Many cost and benefit analysis evaluations are performed by governments before they perform or implement a new policy or campaign. In many cases, the benefits of a specific measure is not certain, while costs may be unquantifiable since public opinion or hardship are difficult to measure. Additionally, costs and benefits may occur in different periods of time. For instance, if a government imposes a new bill which will cut spending for education, the savings for the government may occur quickly, while the potential ramifications may not become apparent until later.

Additional areas in which a social cost and benefit analysis may be necessary include matters of healthcare, public and national security, and environmental protection. For example, the potential benefits and costs may be weighed in regards to a new public health campaign or disease research study. Sometimes it is hard to determine the potential risks and benefits of a particular action, especially if no similar action has ever been tried before. In these cases, governments or organizations may have to rely on any available data, public opinion, perceived risk for avoiding the action, and the opinions of those who are in charge of implementing the action.

When doing a social cost and benefit analysis, it is often hard to determine if benefits outweigh potential costs when both measures are in different forms. If the only issues at stake are monetary, it is fairly cut and dry. The action will be put in place if more money will be made in response to the action than what was spent in performing the action. It's not nearly as simple when the benefits are monetary but the costs are something else entirely, or vice versa. This makes it very hard to determine which is of greater value.

An example would be if a local government wanted to cut funding for certain government provided programs. The benefits of doing this would be more money for the local government to spend on other projects, some of which may be perceived as more important by certain social groups. The costs would be related to the impact the cutting of such programs would have on the general population at large. Problems may arise when performing the social cost and benefit analysis, because it is difficult to decide whether monetary value is greater than social comfort or hardship, especially if the groups affected are a small number when compared to those who would benefit.

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