Ken Hanley wrote:
I know there are problems about measuring cost and benefits biases in measurement etc. but my problem is conceptual. As I understand it modern economics does not assume that interpersonal comparisons of utility are possible just ordinal rankings of individual preferences. If this is so how does one make the transition to measurement of cost and benefits in monetary terms that is the typical mode of analysis in applied cost benefit analysis? Doesn't the measurement in monetary units assume there is some interpersonal utility that is measurable in these units?
Ken, the founding work on Cost was written by John Maurice Clark in 1923: "Studies in the Economics of Overhead Costs." Later in his life, Clark summarized: "Cost of some sort is supposed to set a minimum below which sales will not be made. _But cost is not a precise, unambiguous objective fact; it is rather a convention allowing considerable latitude_." The accountants figure out costs -- after the fact. Cost-Benefit analysis rests on a number of shaky assumptions; never fully revealed to the reader. Larry Shute Economics Department Calif. State Polytechnic University, Pomona
