Comparative technology investment opportunities

Understanding how legislation has an impact on business practice can be illustrated by looking at the sorts of decisions companies need to make. In many situations for an investment option, one has to choose from a number of possibilities, and financial and profit factors inevitably have a bearing on the decision. There are many methods available in economics for analysing options. However, for this unit we are going to concentrate on one: cost–benefit analysis (CBA), which compares the costs of investment and running charges (if applicable) against the benefits (profits) of the investment.

The costs are often higher when negative environmental impact has to be taken into account, as seen in figure 1.5.

Figure 1.5: Balance of costs against benefits

Image source: University of Derby (2022)

Figure 1.5 shows the balance of costs against benefits. The costs of damage are those to people and the natural environment, whilst control costs are the costs that are needed to control the environmental impact. These can be direct costs in building scrubbers, other methods to stop pollution or introducing a new process. If you balance these, you get a minimum in the total curve which shows the point at which the expenses of environmental protection are balanced against the savings obtained by decreasing the overall damage. This is the point at which most companies operate and which legislation is aimed at achieving. There may be a range of ways of achieving the legislative requirements, but, usually, companies are focused on finding the minimum cost to meet these requirements.