Explain the difficulties of carrying out cost-benefit analysis. [8]

One potential difficulty arising from this system is the inherent inaccuracy of attempting to put a monetary value on a social costs or benefit. It is arguable that a faster commute to work has anywhere from no value to an incredibly high value depending on how much any individual analyst values their time. Similarly, it can be argued that the cost of not having to face pollution and the ability to enjoy clean air is virtually priceless, or, at the very least, incredibly valuable. Thus, accurate appraisal of the value of many social costs and benefits is very difficult to do accurately, unless the use of expensive, large sample size, public opinion polls is employed, and even then, due to information failure, such polls can be misleading. Thus, due to the inherently subjective nature of determining the monetary value of a social cost or benefit, there will always be some degree of inaccuracy when these values are assigned, and in turn, in the analysis as a whole.

Another difficulty arises form the process of forecasting the future value of certain costs or benefits as it is nigh on impossible to properly predict technological advancements and their impact on the significance of certain costs or benefits. For example, investments in theaters and museums might be analysed to conclude that the entertainment derived from these facilities is very valuable. However, if technological breakthroughs allow for more immersive and affordable digital entertainment, this value of added entertainment would be highly diminished. Thus, this constantly changing nature of the social costs and benefits leads to incredibly hard to predict values for the future, thus making forecasts more inaccurate and in turn causing the cost-benefit analysis system to be less effective.