Cost-Benefit Analysis (CBA)

VSL is derived from labor economics: comparing wages of workers in hazardous vs safe jobs (wage premium for risk). If workers accept a job with 1 in 10,000 annual mortality risk for a $5,000 wage premium, implied VSL = $5,000 × 10,000 = $50 million. Reviews consolidate estimates: U.S. EPA and OSHA typically use $10–$15 million per life (2020 dollars). Criticism: VSL is context-dependent (poor workers may accept hazard at lower premium than rich); geographic variation; not everyone's life valued equally.

Differences in: (1) Discount rate choice (3% vs 7% → different NPV); (2) Time horizon (20 years vs 50 years → downstream benefits weighted differently); (3) Benefit valuation (WTP survey yields $X, revealed preference yields $2X); (4) Cost data (one study underestimated, another overestimated); (5) Included externalities (narrow scope vs broad scope). Standard practice: transparent reporting of all assumptions and sensitivity analysis over plausible ranges, showing which inputs drive results.

They are not, typically. CBA monetizes what can be valued; intangibles are identified separately in qualitative sections ('This program also improves community social cohesion and cultural preservation, which are not monetized but valued by the community'). Some advanced frameworks assign weights or shadow prices to intangibles based on stakeholder surveys, but this is less standard.

Social discount rate reflects society's time preference and opportunity cost of public funds. U.S. standard: 3% real (Office of Management and Budget). UK: 3.5%. Developing countries: sometimes 5–10% (scarcer capital, higher opportunity cost). Debate: some argue lower rates (0–2%) for intergenerational projects (climate, infrastructure benefiting future generations); others defend 3% as market-based. Guidance: 3% is default; sensitivity-test 0%, 5%+ to show robustness.

Not necessarily. NPV is one input to policy decisions. If a program has negative NPV but strong equity benefits (helps disadvantaged), redistribution goals, or non-monetizable benefits (dignity, rights), decision-makers may choose to proceed. Conversely, positive NPV does not guarantee implementation if equity or sustainability concerns exist. CBA is a tool to inform, not dictate, decisions.

Yes, but with adaptations. CBA in low-income settings must (1) use local prices (not high-income country prices); (2) value health using country-specific VSL or willingness-to-pay (often much lower than U.S./Europe due to lower income); (3) use locally calibrated discount rate (may be higher, reflecting capital scarcity); (4) account for equity: program benefits to poorest groups may warrant higher weighting. WHO and World Bank have developed guidelines for CBA in developing countries.