WWRC 90-20
Probability Distribution for Benefit/Cost Ratio and Net Benefit
Abstract
Benefit/cost ratio and net benefit are the two most commonly used
criteria for evaluating the economic merit of public development projects. Due to
the existence of uncertainly in cost and benefit estimations, the benefit/cost ratio
and net benefit cannot be quantified with absolute certainty. In most probabilistic
benefit/cost analysis the probability distributions of the benefit/cost ratio are chosen
arbitrarily. The intent of this paper is to present the results from a numerical
experiment in attempting to identity the appropriateness of various commonly used
probability distributions in describing the random behavior of the benefit/cost ratio
and net benefit of an economic development project.
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