Combined multi-criteria and cost-benefit analysis

The paper is an introduction to both theory and application of combined Cost-Benefit and Multi-Criteria Analysis. The first section is devoted to basic utility theory and its practical application in Cost-Benefit Analysis. Based on some of the problems encountered, arguments in favour of the application of utility-based Multi-Criteria Analyses methods as an extension and refinement of the traditional Cost-Benefit Analysis are provided.

The theory presented in this paper is closely related the methods used in the WARP software (Leleur & Jensen, 1989). The presentation is however wider in scope.The second section introduces the stated preference methodology used in WARP to create weight profiles for project pool sensitivity analysis.

This section includes a simple example. The third section discusses how decision makers can get a priori aid to make their pair-wise comparisons based on project pool sensitivity. Since pair-wise comparisons contains information on the trade-off’s acceptable to the decision maker, it is possible to calculate the shadow price of the effect compared to a given price base.

The final section discusses two different approaches for the building of weight profiles. These are denounced thematic and segregated weight profiles. The use of weight profiles in the decision process is briefly discussed.