In environmental policy evaluation, what is a key limitation of cost-benefit analysis?

• A. It cannot account for non-market goods
• B. It often struggles to value non-market goods
• C. It ignores environmental impacts
• D. It only considers social impacts

Answer: (B)

Cost-benefit analysis works by putting monetary values on costs and benefits to compare policies. A major challenge in environmental policy is assigning value to goods and services that don’t have market prices—like biodiversity, clean air, scenery, and ecosystem services. Because these non-market goods lack direct price signals, analysts rely on proxies and valuation methods (such as contingent valuation, hedonic pricing, or travel costs). These approaches introduce uncertainty and sometimes bias, so the overall results may understate or misrepresent the true benefits of environmental improvements. That’s why the best answer is that it often struggles to value non-market goods.

The other statements aren’t as accurate. It isn’t correct to say it cannot account for non-market goods at all, since valuations are attempted (even if imperfect). It isn’t true that it ignores environmental impacts outright, since those impacts are included when they can be valued. And it’s not limited to social impacts—the scope typically includes economic, environmental, and sometimes social considerations.