一、Cost-benefit criteria

1. Type of economics

• Positive economics 实证经济学: what it is/was/will be
• Normative economics 规范经济学: what ought to be
• Cost-benefit analysis is both positive economics and normative economics
• The system of measurement is anthropocentric（人类中心主义）.This means that all benefits and costs are valued in terms of their effects on humanity.

2. Types of cost-benefit analysis

• Prospective analysis 展望性
  • Conducted before a policy has been in place
  • Purposes：1）determine if a decision is beneficial；2） compare multiple options.
• Retrospective analysis 回顾性
  • Conducted after a policy has been in place for some time.
  • Purpose：1）identify opportunities for policy reform, by evaluating whether existing policies are justified【检测政策是否合理，能否改进】；2）provide insights into the accuracy of prospective cost-benefit analysis and identify ways to improve future analyses.【对预期成本效益分析的准确性提供见解，并确定改进未来分析的方法。】

3. Cost-benefit criteria

• Net benefit = Benefit – Cost. 【 Net benefit > 0 ⇒ 意味着存在潜在的Pareto improvement可能】
• Benefit-cost ratio = Benefit / Cost 【Ratio > 1 ⇒ Potential Pareto improvement】
• Internal rate of return (IRR) 内部收益率：使得项目贴现后的当期收益为0，表现的是这个项目如果等同为资本储蓄的利率。如果IRR>当期利率，则认为可行

Net benefit vs benefit-cost ratio

• 没有哪种标准是一定更优的
• If there is no budget constraint (or constraint > $2000), you may choose net benefit criterion
• If budget constraint < $2000, you may want to choose benefit-cost ratio criterion

4. Net benefit in dynamic context