A private cost is the cost paid by an economic actor in order to produce or obtain a specified amount of a product. These are the internal costs borne directly by the entity undertaking an activity, as opposed to External cost which are borne by others in society without being reflected in market prices.
Private costs represent the financial expenditure that appears in conventional accounting systems and business ledgers. They include direct production costs such as raw materials, labour, energy, equipment, and overhead expenses that the producing entity must pay to create or acquire a product. These costs are internalised within the economic transaction and are typically reflected in the market price of goods and services.
In the context of Life Cycle Assessment and sustainability evaluation, understanding the distinction between private costs and external costs is fundamental. Whilst private costs capture the economic burden experienced by market participants, they do not account for the broader social and environmental impacts that may be imposed on others. This distinction is crucial for comprehensive sustainability assessment.
Environmental Life Cycle Costing focuses on quantifying these private costs across the entire life cycle of a product, from raw material extraction through to disposal. Environmental LCC covers all costs directly borne by actors in the product life cycle, with complementary inclusion of externalities anticipated to be internalised in the decision-relevant future. The cumulated LCC result equals the price of the product when accounting for all value added throughout the life cycle, including costs during use and disposal phases.
The term internal cost is used synonymously with private cost, emphasising that these are costs internal to the economic actor rather than external to them.
