The Origins of Cost-Benefit Analysis

Abstract

While the underlying theory of CBA can be traced back to some welfare economics of the nineteenth century, the practice of CBA can be said to date from the introduction of the Flood Control Act 1936 in the USA. It seems fair to say that that Act owed little or nothing to the body of welfare economics theory that had emerged by the time of the Act’s introduction; indeed, as we shall see, the placing of CBA in a firm conceptual framework occurred after the Act and particularly in light of certain theoretical developments at the end of the 1930s. The Flood Control Act determined that the control of flood waters was ‘in the interests of the general welfare’. And it went on to state a most general rule to the effect that the Federal Government ‘should improve or participate in the improvement of navigable waters … for flood control purposes if the benefits to whomsoever they accrue are in excess of the estimated costs’(our italics). Too much must not be read into the Flood Control Act. First, the reference to the unrestricted nature of the benefits that should be taken into account was not matched by a similar coverage for costs.