ABSTRACT
In the context of policy analysis and project appraisal, cost-benefit analysis (CBA) is often considered (especially by economists) as the best evaluation tool with its focus on efficiency criteria. However, any policy decision affects the welfare of individuals, regions or groups in different ways. As a consequence, public support for any policy decision depends upon the distributional effects it entails. CBA is based on the Kaldor-Hicks hypothetical compensation principle, which is grounded in preferences expressed in the market place (or which would be expressed if there were a market), not on preferences expressed by a political vote. The main underlying idea of using such preferences is that individuals can be compared by virtue of being consumers. The market provides a single unit of measurement (i.e., money values) expressed via an individual's willingness to pay (or accept payment) for a good or service. The validity of money values is then connected to the objective of economic efficiency and the institution of the market. However, this approach fails to incorporate other objectives and values, such as equity or sustainability.
