Cost-Benefit Analysis: A Conceptual Framework as Applied to the Kalamazoo River Valley Trailway Partnership
Pessetti, Michael J., II
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Cost-benefit analysis is a complex process and volumes have been written on each of its many components. This paper was not meant to provide the reader with completely detailed knowledge of the many facets of this analytical technique but rather to lay the groundwork for further, more in depth study. The framework has been applied to a local public project called the Kalamazoo River Valley Trailway Partnership to create concrete examples allowing for greater accessibility to the various concepts. The applications have intentionally been kept straightforward so as to avoid unnecessary confusion. The paper covers five of the elements that are key to the successful analysis of any public project. These being the concepts of consumer's surplus/willingness to pay, shadow pricing, transfer payments, discounting, and risk and uncertainty. These components were chosen in the hopes that the reader will recognize the central difficulty in cost-benefit analysis as being the necessity of quantifying each of the costs and benefits involved in the project in equal terms. When the factors range from new jobs to improved infrastructure to improvements in environmental quality one can quickly see the complexity of this task. It will become increasingly evident that the central issue in cost-benefit analysis is the collection of pertinent factors and their subsequent quantification into like terms so that they might be easily compared and computed once entered into the final equation. Each component plays its role in the process and while this paper does not cover every aspect of cost-benefit analysis it covers five of the core ideas showing how each builds upon and draws from the others.