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Benefit-cost analysis using data envelopment analysis

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Abstract

Benefit-cost analysis is required by law and regulation throughout the federal government. Robert Dorfman (1996) declares ‘Three prominent shortcomings of benefit-cost analysis as currently practiced are (1) it does not identify the population segments that the proposed measure benefits or harms (2) it attempts to reduce all comparisons to a single dimension, generally dollars and cents and (3) it conceals the degree of inaccuracy or uncertainty in its estimates.’ The paper develops an approach for conducting benefit-cost analysis derived from data envelopment analysis (DEA) that overcomes each of Dorfman's objections. The models and methodology proposed give decision makers a tool for evaluating alternative policies and projects where there are multiple constituencies who may have conflicting perspectives. This method incorporates multiple incommensurate attributes while allowing for measures of uncertainty. An application is used to illustrate the method.

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Author information

Authors and Affiliations

  1. College of Business Administration, University of Missouri-St. Louis One University Boulevard, St. Louis, Boulevard, MO 63121-4400, U.S.A

    N. K. Womer

  2. Haworth College of Business, Western Michigan University, Kalamazoo, MI, 49008, U.S.A

    M.-L. Bougnol

  3. School of Business, Virginia Commonwealth University, Richmond, VA, U.S.A

    J. H. Dula

  4. Mitchell College of Business, University of South Alabama, Mobile, AL, U.S.A

    D. Retzlaff-Roberts

Authors
  1. N. K. Womer
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  2. M.-L. Bougnol
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  3. J. H. Dula
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  4. D. Retzlaff-Roberts
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Corresponding author

Correspondence to N. K. Womer.

Additional information

This work was funded by grant N00014-99-1-0719 from the Office of Naval Research

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Womer, N.K., Bougnol, ML., Dula, J.H. et al. Benefit-cost analysis using data envelopment analysis. Ann Oper Res 145, 229–250 (2006). https://doi.org/10.1007/s10479-006-0036-5

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