GAO Glossary of Terms and Definitions (September 2005)

Cost-Benefit Analysis

(Economics Term)

An analytic technique that compares the costs and benefits of investments, programs, or policy actions in order to determine which alternative or alternatives maximize net benefits (economic efficiency). Cost-benefit analysis attempts to consider all costs and benefits to whomever they accrue, regardless of whether they are reflected in market transactions. The costs and benefits included depend upon the scope of the analysis, although the standard federal analysis is national in scope. Net benefits of an alternative are determined by subtracting the present value of costs from the present value of benefits. (See also Present Value.)

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