Cost-benefit analysis differs from traditional methods in several ways:
1. Systematic approach: Cost-benefit analysis is a systematic approach that evaluates the costs and benefits of a particular project, policy, or investment. In contrast, traditional methods rely on intuition and past experience.
2. Quantitative analysis: Cost-benefit analysis relies heavily on quantitative analysis. It considers the monetary value of all costs and benefits associated with a project, and the net present value. Traditional methods, on the other hand, may not involve any quantitative analysis.
3. Objective decision-making: Cost-benefit analysis helps in making objective decisions, as it compares the total costs to the total benefits using a common monetary unit. This makes it easy to compare different projects or policy options. Traditional methods may not provide a clear basis for making objective decisions.
4. Consideration of externalities: Cost-benefit analysis considers externalities, which are the unintended impacts on third parties, as well as social, economic, and environmental impacts. Traditional methods may not take into account these externalities.
5. Focus on long-term impacts: Cost-benefit analysis takes a long-term perspective, which means that it considers the impacts of a project far into the future, which also includes the net present value. Traditional methods tend to focus on short-term impacts only.
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