Final answer:
The difficulty in quantifying the benefits of public goods arises from their non-excludable and non-rivalrous nature, which leads to widespread and often non-tangible benefits that are hard to assign a market value to. This makes cost-benefit analysis in public policy both challenging and essential.
Step-by-step explanation:
Determining the benefit of providing a public good is challenging because unlike private goods, public goods are typically non-excludable and non-rivalrous. This means that they are available to everyone, and one person's use of the good does not diminish another's ability to use it. These characteristics make it difficult to assign a market value to public goods and to measure the private benefits individuals receive.
Furthermore, the benefits of public goods are often widespread and can affect people in non-tangible ways, making it hard to quantify them. For instance, in a cost-benefit analysis of a new community pool, the benefits enjoyed by different societal groups such as renters, homeowners, and businesses will be varied and subjective. Additionally, some benefits like improved community health or social cohesion are hard to monetize.
Cost-benefit analysis is nonetheless essential in public policy decision making. When it comes to national defense, for example, the positive externalities are so extensive that it is impractical for private firms to provide the good. That's why governments typically step in to provide and finance public goods, weighing the overall societal benefits against the costs involved.