The Origins of CBA

Abstract

Whilst the underlying theory of cost-benefit can be traced back to the welfare economics of the nineteenth century (see Section 3 below), the first practical embodiment of the net benefit maximand occurred in various pieces of United States legislation on water resources in the 1930s. The Flood Control Act of 1936 established `the principle of comparing benefits to whomsoever they may accrue with the estimated costs', thus indicating clearly the social nature of the public investment decision. The precise meaning of a `benefit' remained obscure, however, and the various U.S. agencies responsible for water resource projects frequently used diverse and loosely defined benefit-cost criteria. The first real attempt to instil order into the various practices was in the celebrated Green Book of 1950, produced by the Federal Inter-Agency River Basin Committee. This was quickly followed by another attempt at formalisation in the Bureau of Budget's Budget Circular A-47 of 1952. Academic interest in these criteria was also growing and a number of critical comments appeared in journals throughout the 1950s. But the real turning-point came in 1958 with the simultaneous publication of works by Eckstein [13], McKean [14] and Krutilla and Eckstein [15].