tradeoffs/benefit-cost thinking

cost benefit analysis (CBA)

puts a money value on all benefits and costs, and the goal is to maximize B - C

cost effectiveness analysis (CEA)

goal is given, find the cheapest way to reach it

issues with aggregating over individuals

externalities, fairness, who is considered, how are they weighted

issues with aggregating over time

significance of future people to us, and if we think they need help

issues with aggregating over possible outcomes

considering risk and uncertainty

possible variables in the future

existence of resource or individual, increased income, impatience, empathy for future person, ability to exchange for more productive assets

microeconomic discounting

lower weight on future benefits, with an annual rate

macroeconomic discounting of consumption

value of future marginal utility compared to now

discount factor =

MU_future / MU_now * pure time factor

discount rate

how to calculate discount factor based on distance of point in the future that consumption happens

real interest rate

the market reflection of the private discount rate

risk aversion

preference for a sure thing to a gamble with a higher expected payoff