Government policy is about making choices. Policy measures often have many different effects and the numerous different advantages and disadvantages of these effects have to be weighed up before a decision can be made. Cost-benefit analysis (CBA) is an important tool for use in the ex-ante assessment of policy options. It is an information tool that supports decision-making on policy measures or alternatives to allow decisions to be as objective as possible. CBA provides an overview of the effects, risks and uncertainties of a measure and the resulting costs and benefits to society as a whole. By quantifying these advantages and disadvantages as much as possible and assigning values to them (in euros), CBA provides insights into the social-welfare effects of the measure expressed as the balance in euros of the benefits minus the costs. This balance also reflects the costs and benefits of the effects on those aspects of social welfare for which there is no market price, such as nature, landscape, community safety, cultural heritage and social cohesion. Expressing effects in monetary terms as much as possible makes it possible to compare them and present the results in an easily understandable form that can be used to weigh up the pros and cons of a measure. This allows us to answer the question of whether the economic and social costs of a measure outweigh the economic and social benefits. CBA does not put a value on the degree to which various groups in society experience the costs or benefits of a measure, but it can reveal and describe these distributional effects. CBA is not only useful for judging whether a decision to proceed or not with a policy measure can be justified on the basis of the balance of benefits and costs, but it can also be used to structure the policy preparation itself. Questions such as 'What is the problem?', 'What will happen if we do nothing?' and' What possible solutions are there?' help to make the discussion about the proposed measures as objective as possible. This is true for all policy fields and all policy measures. To make a good CBA requires not only knowledge of welfare economics, but also a thorough understanding of the policy field under investigation. Sometimes there may be doubts about whether it is desirable or even possible to carry out a CBA. Doubts about the desirability of doing a CBA may arise if economic efficiency is of little or no importance, for example when the main consideration is about human dignity or moral values (e.g. abortion, euthanasia, slavery). In such cases a CBA is not considered to be appropriate. In addition, the degree to which it proves possible to actually determine the relevant costs and benefits will vary between CBAs.1 This depends on the availability of good empirical impact studies. The lack of such information is not a shortcoming of the CBA tool itself, but it means further empirical research into the effects will be needed before the CBA can be completed. Should the information available about the effects may be too uncertain to permit any useful quantification of those effects, CBA can serve a useful purpose by identifying in a structured manner what we do know about a proposed measure and what we do not know, thus helping to structure the decision-making process and make it as objective as possible. The guidance document on the evaluation of infrastructure projects (Overview of the Effects of Infrastructure (OEI), Eijgenraam et al., 2000) is a widely endorsed set of guidelines on preparing a CBA for transport infrastructure projects in the Netherlands. Since its publication in 2000, it has been further developed and expanded through the production of supplements, handbooks and additional guidelines, and in CBAs that have been carried out. The number of fields in which the guidelines can be used has also been expanded, and more continue to be added. These developments have created a need for new guidance on preparing CBAs. This new guidance document meets this need. It pulls together the expertise and experience gained in recent years and makes them available for use across a broad range of policy fields in the form of a general guidance on social cost-benefit analysis, or' general CBA guidance'. This general CBA guidance describes how to carry out a CBA and the requirements for the various elements of the CBA, with particular attention to the role of CBA in the decision-making process. We discuss the various types of CBA and when these different types can best be used. And because this new general CBA guidance is widely applicable, we also explain the theory underlying CBA. This can be consulted when questions arise over the correct use of CBA, particularly when the policy fields or proposed measures are not usually associated with CBA. Besides setting out some rules and guidelines, this new guidance leaves various aspects open for development in more detail in CBA handbooks for specific policy fields. The emphasis is therefore more on the correct application of the principles rather than on the rigid implementation of a fixed set of procedures. At the same time, the broad applicability of this guidance means that it is impossible to fully describe all aspects of CBA for all policy fields. Instead, we focus on those elements of the CBA methodology that apply to all policy fields. The principles contained in this guidance apply to all policy fields and, in turn, the preparation of policies in all fields can benefit from the principles underlying CBA. This general CBA guidance therefore provides a general set of minimum requirements that should be met by each CBA. The guidance also provides the basis for preparing sector-specific handbooks. In the rest of this summary we examine the role of CBA in decision-making and how CBA can be used to greatest effect (Section Si). We then discuss, in Section S2, the theoretical principles underlying CBA. In Section S3 we describe the steps that need to be taken to prepare a CBA, along with the relevant rules and guidelines. Finally, Section S4 sets out the requirements for reporting and presenting the results of the CBA. (Author/publisher)
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