Cost-benefit analysis in the nineties


Ecc Project Evaluation, Part 1: Some Lessons for the 1990's

As countries reduce the size and extent of policy-induced distortions in their eces, the proper accounting for such distortions becomes just one among many aspects of ecc project evaluation rather than its main purpose. Matters neglected in the past thus assume greater importance, such as the proper treatment of' expected future changes in relative prices, and improving our calculation of expected benefits and costs through assigning probabilities to alternative future outcomes. It is also time to recognize the short-comings of distributional weights (especially weights that decline exponentially with income) for cost-benefit analysis. The alternative schema of "basic needs externalities" is shown to be far less vulnerable. Special topics of interest for future work are: (a) the fact that there is now far less reason than earlier to turn to calculations in terms of border prices (which are often cumbersome and stilted); (b) the fact that the use of time preference rates to discount benefits and costs has vast implications for the analysis of current (in addition to capital) expenditures; (c) the proper accounting for externalities in cases where public-sector projects compete with or even displace similar private-sector operations, and (d) the appropriate ways in which cost-benefit analysis can be adapted in cases where pure ecc efficiency is not the sole objective.

Cost-Benefit Analysis at a Crossroads: The New World Bank and Asian Development Bank Guidelines on Ecc Analysis of Investments

The World Bank and the Asian Development Bank are revising their respective Guidelines for Ecc Analysis of Investments in response to a changed ecc environment. Organization and management changes are also occurring as the banks attempt to both reduce the budget and improve project quality. These changes have implications for the consultants who increasingly conduct the banks project appraisals. The new guidelines generally encourage the use of a willingness-to-pay nurneraire expressed at the domestic price level and a shadow exchange rate, This article addresses the distribution of project impacts in distribution tables rather than using income weights.

Evaluating the Social Cost of Job Creation

This article discusses the principal labor market distortions and their effects on the social cost of jobs created in industrial projects. Two alternative approaches, a partial and a general equilibrium analysis, are put forth as ways to measure labor's opportunity cost in a systematic fashion. The general equilbrium approach provides a more sophisticated analysis because it takes into account labor migration between regions and the multiplier effect of job-creation projects on the project region.

The Trend Scenario Method in Cost-Benefit Analysis: A Model for the Evaluation of Occupational Safety and Health Regulations

This article outlines the trend scenario method of analyzing costs and benefits in Canadian federal government occupational safety and health regulations. The trend scenario enables a comprehensive cost-benefit evaluation model involving past trends and parameter projections, which improve reliability of and control over the predicted results, as long as the assumptions and parameters are carefully documented and qualified. Inherent biases and limitations of this trend scenario method are also discussed.

Risk-Sharing Contracts in Project Appraisal

This article discusses how to adapt Monte Carlo simulation techniques for the analysis of risk-sharing contracts. It outlines parallels with contingent claims analysis of risk-sharing contracts, and discusses the roles and effects of the different basic types of risk contracts in managing risk and improving the feasibility of projects, particularly large-scale resource and utility contracts. The author presents the simple analytics of how risksharing contracts affect the expected returns and variance in these returns of the various participants in a project, along with how to incorporate risk sharing in Monte Carlo simulation technique models of the appraisal of projects. These techniques make the analysis of different structures of often complicated contracts for large complex projects tractable.

Linking East and West Bangladesh: The Jamuna Bridge Project

The Jamuna Bridge project is a case that illustrates an integrated approach to project appraisal. An integrated approach allows analysts to examine financial, ecc, distributive, and risk analysis in conjunction with each other such that no single aspect is left to be examined in isolation. The ecc analysis, which looks at the project's impact on Bangladesh's overall ec, presents a method of computing the real ecc benefits of the bridge, including savings in vehicle operating costs, and the value of time savings gained by passenger and freight traffic. The financial analysis of such an infrastructure project checks on the sustainability of the service agency (the Bridge Authority) over time. Sensitivity and risk analyses are central to the evaluation of this project because they identify the most critical variables and allow a probability distribution of values to be used in the model, rather than a single deterministic value. The distributive analysis identifies who would gain or lose if the bridge project was undertaken, which, in turn, indicates who would be likely supporters or opponents of the project.