The theory of cost-benefit analysis is widely applicable in many life domains, including business and economics, social issues, education, health and medicine, and many other fields. That is why cost-benefit analysis is actively discussed in modern research, and there are many studies related to the overall topic and its particular elements. This section of the paper is a literature review on cost-benefit theory as a theoretical framework.
In general, contemporary literature suggests that the cost-benefit theory is supposed to answer several specific questions, and their essences depend on the scientific or social field where the corresponding analysis is applied (Sunstein, 2018). For instance, if the theory is applied within a field of policy, the goal is to identify the positive and negative consequences and effects of particular policies; the medical field uses the cost-benefit analysis to determine how many lives can be saved; the business area is interested whether specific decisions can hurt consumers or employees (Sunstein, 2018). Overall, the current literature defines the cost-benefit theory as a widescale instrument that can be implemented for various purposes in many areas of activity.
In addition, the reviewed literature provides a more detailed description of the cost-benefit theory, explaining its purpose and primary goals. Koopmans and Mouter (2020) discuss cost-benefit analysis in the book related to transport policy and planning as a method of measuring a value of a particular project by quantifying its effects and “making costs and benefits comparable in monetary terms” (p. 1). However, the authors further explain that there is much more to the cost-benefit theory than actual (monetary) costs and benefits: the theory is practically about “comparing the advantages and disadvantages of a potential decision” (Koopmans & Mouter, 2020, p. 2). According to Kool et al. (2017), the advantages and disadvantages of a specific action can shape human behavior in a particular situation because people tend to make their decisions based either on their habits or goal-directed planning. In other words, the modern literature provides evidence that all people, though subconsciously, use the cost-benefit theory in their daily life, analyzing the costs and benefits of their actions and behavior and then deciding how they should proceed in a specific situation.
Many studies investigate various aspects of the cost-benefit theory, exploring its implementation in one or several particular domains. Scientists from the Czech Republic apply the cost-benefit analysis to the concept of the so-called “smart city,” using the theory as “a methodical approach towards the efficiency evaluation of proposed smart city solutions” (Tureckova & Nevima, 2020). Furthermore, Cordes (2017) evaluates the cost-benefit theory’s potential uses and limitations in terms of private investments and foundations for various funding enterprises. The author emphasizes that the cost-benefit analysis is a significant part of major societal and public programs in the areas of education, environmental issues, health and healthcare, and human resources, contributing to the corresponding decision-making process and influencing the outcomes (Cordes, 2017). Everything described above illustrates many ways to implement the cost-benefit theory, and many of those ways are explained in detail in the reviewed studies.
There are several ground concepts related to the theoretical framework of the cost-benefit theory presented in the current literature. According to Cordes (2017), two main principles of the theory make it valuable in terms of evaluation methodology and aiding the public decision-making process: coherence and comprehension. The researcher claims that the cost-benefit theory is coherent since it “draws on a consistent set of economic principles for defining social benefits and costs,” meaning that, though there are many implementations for the theory described in the previous sections of this review, it still has the economic background (Cordes, 2017, p. 99). Then, Cordes (2017) finds the theory comprehensive because “its objective is to arrive at a “bottom-line” based on the concept of social benefit and cost that is broader than private revenue and cost normally be used to assess the performance of profit-making enterprises” (p. 99). The specificity of profit-making serves as additional evidence to the economic nature of the cost-benefit theory, which demonstrates the significance of the theory for the modern world as it has managed to apply basic economic principles to various life domains.
Finally, the literature reviewed provides several concrete examples of implementing the cost-benefit theory, allowing readers to understand how it works. For instance, Sunstein (2018) describes a practical situation regarding increasing safety on the highways with two variables, and the first one implies that the potential efforts are expected to contribute to saving five hundred lives annually with low costs, making an effort have a positive outcome and be efficient from the viewpoint of the theory. The second variable implies that only two lives will be saved annually at the cost of hundreds of millions of dollars, and the corresponding decision will probably not be made based on the cost-benefit analysis of the situation (Sunstein, 2018). These examples explicitly illustrate the cost-benefit theory implementation, though they do not consider theoretical commitments. Overall, the reviewed studies demonstrate that there is much detailed information on the cost-benefit theory, its implementation, and particular aspects, and no significant gaps in knowledge have been identified.
References
Cordes, J. J. (2017). Using cost-benefit analysis and social return on investment to evaluate the impact of social enterprise: Promises, implementation, and limitations. Evaluation and Program Planning, 64, 98-104.
Kool, W., Gershman, S. J., & Cushman, F. A. (2017). Cost-benefit arbitration between multiple reinforcement-learning systems. Psychological Science, 28(9), 1321-1333.
Koopmans, C., & Mouter, N. (2020). Cost-benefit analysis. In N. Mouter (Ed.), Advances in Transport Policy and Planning (pp. 1-42). Academic Press.
Sunstein, C. R. (2018). The cost-benefit revolution. MIT Press.
Tureckova, K., & Nevima, J. (2020). The cost benefit analysis for the concept of a smart city: How to measure the efficiency of smart solutions?. Sustainability, 12(7), 1-17.