Social Cost and Opportunity CostEstimating CostsEstimating Costs
Social CostsThe most comprehensive and appropriate measure of the costs in a benefit-cost analysis for any policy action is social cost. Social cost represents the total burden on those with standing. In a regulatory context, it can be defined as: “the sum of all opportunity costs incurred as a result of the regulation.”- EPA. (2010).Guidelines for Preparing Economic Analyses.Estimating Costs
Opportunity CostThe value of the next-highest-valued alternative use of that resourceExamples:◦Playing tennis vs. reading a book◦Going to class vs. enjoying the summerIf an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose that the asset could have been used for.Estimating Costs
ExampleYou won a free ticket to see Imagine Dragons in concert, but you may not give the ticket away or resell it, so it has no resale value. The average ticket price for their tour is $120.