Optical Burst Switching (OBS) is a new paradigm for an all-optical Internet. It combines the best features of Optical Circuit Switching (OCS) and Optical Packet Switching (OPS) while avoidmg the mam problems associated with those networks .Namely, it offers good granularity, but its hardware requirements are lower than those of OPS. In a backbone network, low loss ratio is of particular importance. Also, to meet varying user requirements, it should support multiple classes of service. In Optical Burst-Switched networks both these goals are closely related to the way bursts are arranged in channels. Unlike the case of circuit switching, scheduling decisions affect the loss probability of future burst This thesis proposes the idea of a cost function. The cost function is used to judge the quality of a burst arrangement and estimate the probability that this burst will interfere with future bursts. Two applications of the cost functio n are proposed. A scheduling algorithm uses the value of the cost function to optimize the alignment of the new burst with other bursts in a channel, thus minimising the loss ratio. A cost-based burst droppmg algorithm, that can be used as a part of a Quality of Service scheme, drops only those bursts, for which the cost function value indicates that are most likely to cause a contention. Simulation results, performed using a custom-made OBS extension to the ns-2 simulator, show that the cost-based algorithms improve network performance