Page 124 - DMGT521_PROJECT_MANAGEMENT

Unit 8: Social Cost Benefit Analysis

Economic Analysis Notes

A methodology developed for evaluating investment projects from the point of view of the
society (or economy) as a whole.

Used Primarily for Public Investment

SCBA aids in evaluating individual projects:
1. Spells out broad national economic objectives

2. Allocation of resources to various sectors
SCBA is concerned with tactical decision making within the framework of broad strategic choices
defined by planning at the macro level.

Rationale for SCBA

1. Focuses on the social cost and benefits of the project

2. Principle sources of discrepancy:
(a) Market Imperfection
(b) Externalities
(c) Taxes and Subsidies

(d) Concern for Savings
(e) Concern for redistribution
(f) Merit Wants

8.1.1 Market Imperfection

Market prices reflect social values only under condition of perfect competition (which are rarely
realized by developing countries) Common sources of market imperfection in developing
countries:

1. Rationing
2. Prescription of minimum wage rate
3. Foreign exchange regulation

Externalities

External benefit or cost created by the project.
Not usually included in the financial cost benefit analysis of the project.
In SCBA all external costs and benefits, irrespective to whom they accrue and whether they are
paid for or not, are relevant.

Taxes and Subsidies

From private point of view:
1. Taxes are monetary costs

LOVELY PROFESSIONAL UNIVERSITY 119