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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
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    The cost of inaction

    By - 6 de November de 2012, 6:52 am

    The Cost of Inaction, Case Studies from Rwanda and Angola I just finished reading The Cost of Inaction, Case Studies from Rwanda and Angola by Sudhir Anand and others. T

    he Foreword, by Amartya Sen, is worth the whole price-tag. According to Professor Sen this is a far-reaching book that goes well beyond the two case studies and its “modest title” and provides

    a good occasion to think about some foundational issues in the evaluation of public policy. 

    For me, an economist that works primarily in Cost Benefit topics, it is refreshing that Professor Sen (re)turns to Cost Benefit Analysis to illustrate these issues (interestingly enough as one of his first books was the 1972 UNIDO Guidelines for Project Evaluation).

    And even more interestingly, 40 years ago he raised very similar issues in his seminal article Control Areas and Accounting Prices: An Approach to Economic Evaluation

    In Cost Benefit analysis there are two key issues which are often ignored or treated superficially: the complexity of benefits foregone by not doing something (called opportunity costs), and the bundling of diverse benefits and costs to reach an overall judgment (benefit measurability).

    By not doing a project, one forgoes its potential benefits.  Cost Benefit is intrinsically then about choosing an alternative among many options and one of those options is doing nothing at all, when

    all the things that could have been done instead become potential sources of cost

    But the opportunity cost is not the cost of inaction, but is relevant to understanding it.  When one does nothing, “common sense” tell us that there are no costs to be incurred and no benefits to be harvested. No harm done.

    No harm done? Read more…