The numéraire matters in cost-benefit analysis

The choice of numéraire is shown to be important in cost-benefit analysis. When a public good is involved, individual consumers' marginal rates of substitution will generally differ. Thus, the less valuable the numéraire is to a person, the higher the number required to express his net benefit,...

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Bibliographic Details
Published in:Journal of public economics 1997-04, Vol.64 (1), p.117-123
Main Author: Brekke, Kjell Arne
Format: Article
Language:English
Subjects:
Consumer attitudes
Cost benefit analysis
Economic theory
Environmental protection
Money
Numéraire
Public good
Studies
Welfare weights
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Summary:The choice of numéraire is shown to be important in cost-benefit analysis. When a public good is involved, individual consumers' marginal rates of substitution will generally differ. Thus, the less valuable the numéraire is to a person, the higher the number required to express his net benefit, and the more will his interest weigh in the total sum. The choice of money as numéraire is systemetically favourable to those who value money the least, relative to alternative numéraires.
ISSN:0047-2727
1879-2316
DOI:10.1016/S0047-2727(96)01610-6