• SOCIAL COST BENEFIT ANALYSIS
PROJECT MANAGEMENT
• BY DR. SHASHI AGGARWAL
•
SOCIAL COST BENEFIT ANALYSIS
•
THE MAIN OBJECTIVES OF AN INDIVIDUAL,A FIRM OR A COMPANY IN INVESTING ON A
PROJECT IS TO EARN THE MAXIMUM POSSIBLE RETURN FOR THE INVESTMENT,THE PROJECT PRMOTERS ARE
SOLELY INTERSTED IN WEALTH MAXIMZATION
•
SOME PROJECTS THAT MAY NOT OFFER ATTRATCIVE RETURN AS FAR AS COMMERICAL
PROFITABILITY IS CONCERNED BUT STILL SUCH PROJECTS ARE UNDERTAKEN THEY HAVE
SOCIAL IMPLICATIONS. LIKE THEY ARE PUBLIC PROJECTS :
1.
ROADS,RAILWAYS,BRIDGE,TRANSPORT PROJECTS,IRRIGATION PROJECTS ETC
2. HERE SOCIAL CONSIDERATION PLAY A SIGNIFICANT ROLE AND THEY ARE EVALUATED FOR THEIR NET SOCIO ECONOMIC BENEFITS AND PROFITABILITY ANALYSIS OF SUCH PROJECTS IS KNOWNS AS NATIONALITY PROFITABILITY ANALYSIS.
·
MEANING OF SOCIAL COST BENEFIT ANALYSIS
1.
SOCIAL COST BENEFIT ANALYSIS CALLED ECONOMIC ANALYSIS, IS A METHODOLOGY
DEVELOPED FOR EVALUATING INVESTMENTS PROJECTS FROM THE POINT OF VIEW OF THE
SOCIETY AS A WHOLE.
2.
EVERY PROJECT IMPOSES CERTAIN COSTS TO THE NATION. THE COST MAY BE OF TWO
TYPES VIZ DIRECT COST AND INDIRECT COST. THE BENEFIT DERIVED FROM ANY PROJECT
WILL ALSO BE OF TWO TYPES VIZ DIRECT BENEFIT AND INDIRECT BENEFIT.
3.
FOR ANALYSING THE COMMERCIAL PROFITABILITY OF THE PROJECTS,ONLY THE DIRECT
COSTS AND DIRECT BENEFITS ARE TAKEN AT THE MARKET PRICES.
4.
SCBA IS NOT A TECHNIQUE BUT AN APPROACH AND IT IS USED TO EVALUATE THE
IMPACT IN TERMS OF NATIONAL GOALS,SOCIAL OBJECTIVES AND GLOBAL FACTS
5.
.SCBA IS USED PRIMARILY FOR EVALUATING PUBLIC INVESTMENTS .
6.
SCBA STRESSES THE NEED ON ENUMERATION OF SOCIAL COST AND BENEFITS OF
PROJECTS AS AGAINTS THE MONETARY COST
AND BENEFITS
•
DIFFERENCE
1.
A PROJECT MAY RESULT IN CREATION OF INFRASTRUCTURE FACILITIES OR MAY RESULT
IN ENVIRONMENT POLLUTION. INFRASTRUCTURE PROJECTS BRINGS BENEFITS AND POLLUTION
BRINGS COST TO THE SOCIETY. BOTH ARE IGNORED IN THE PROJECT ANALYSIS BECAUSE
THEY ARE NON MONETARY. IN SCBA THESE TYPES OF COSTS AND BENEFITS ARE CONSIDERED
2.
IN MONETARY ANALYSIS,ALL COSTS AND BENEFITS ARE MEASURED IN TERMS OF MARKET
PRICES BUT DUE TO MARKET IMPERFECTION ,THE MARKET PRICE MAY NOT TRUEELY REFLECT
THE SOCIAL VALUES. REASONS : MINIMUM WAGE RATE,RATIONING,CONTROL,FOREIGN
EXCHNAGE RESTRICTIONS
3.
IN MONETARY ANALYSIS ,THE TAXES PAYABLE AND SUBSIDIES ARE COST AND BENEFITS
BUT IN SCBA THESE ARE CONSIDERED TRANSFER PAYMENTS
•
EXAMPLE
•
PHARAMACEUTICAL COMPANY PRODUCING LIFE SAVING DRUGS
•
PHARAMACEUTICAL COMPANY IS INTERESTED IN THE RETURN IT EARNS ON INVESTMENT
•
IT IS CONCERNED WITH MARKET PRICE
•
SOCIAL BENEFIT MAY BE MORE THAN THAT : IMPROVES THE WELL BEING OF THE
SOCIETY
•
FINANCIAL COST WHICH IS RELEVENT TO
THE COMPANY
•
INDIRECT COST THE SOCIETY :
ENVIRONMENT POLLUTION,THE HARMFUL EFFECT OF THE DRUG
•
EXAMPLE
•
CONSTRUCTION OF THE BRIDGE OVER THE RIVER
•
INDIRECT BENFIT TO THE SOCIETY
----IMPROVED COMMUNICATION FACILITES, REDUCTION IN TRANSPORTATION
COST,REDUCTION IN TRAVELLING TIME
•
INDIRECT COST : ACQUISITION OF PRIVATE LAND, REMOVAL OF AGRICULTURAL/INDUSTRIAL/COMMERCIAL
ACTIVITES
•
DISTURBANCE OF ECOLOGICAL VALUES
•
THE SOCIAL COST AND BENFITS ANALYSIS
CLASSIFICATION
•
PRIMARY : SPECIFIC TO PROJECT AND ARE SAME AS THE
MONETARY COST AND BENFITS
•
SECONDARY : QUANTIFIABLE OF NON QUANTIFIABLE COSTS AND BENEFITS WHICH
ARE AVILABLE TO OTHER PARTIES THAN PROMOTERS. LIKE ENVIRONMENTAL POLLUTION AND
ITS EFFECT ON THE SCOIETY,GENERATION OF EMPLOYMENT OPPROTUNITIES,FOREIGN
EXCHNAGE EARNED OR SPENT ETC
•
SHADOW PRICES : THE SOCIAL COST AND BENEFITS OF PROJECTS ARE MEASURED IN
TEMRS OF SHADOW PRICES WHICH ARE DIFFERENT FROM MONETARY PRICES
•
SHADOW PRICES : THE SOCIAL COST AND BENEFITS OF PROJECTS ARE
MEASURED IN TEMRS OF SHADOW PRICES WHICH ARE DIFFERENT FROM MONETARY PRICES
•
THE SHADOW PRICES REFERS TO THE VALUES WHICH REFLECT THE SOCIAL COST AND
BENFITS
•
THE PRICES USED EXPLICITLY IN EXCHNAGE OF GOODS ARE MARKET PRICES BUT THE
PRICES IMPLICIT IN EXCHNAGE OF GOODS ARE SHADOW PRICES
•
IN PERFECT DEVELOPED MARKET THE MARKET PRICES REFLECT THE SHADOW PRICES BUT
UNDERDEVELOPING NATIONS : FRAMEWORK OF SHADOW PRICES TO BE DEVELOPED TO MEASURE
THE NET INCOME BENFITS OF THE PROJECT
•
TWO METHODS OF MEASURING THE SHADOW PRICES
•
UNIDO METHOD
•
LITTLE-MIRRLEES ( LM ) METHOD
•
FEATURES OF SOCIAL COST BENEFIT ANALYSIS
1.
ASSESSING THE DESIRABILITY OF PROJECTS
2.
IDENTIFICATION OF COSTS AND BENEFITS
3.
MEASUREMENT OF COSTS AND BENEFITS
4.
THE EFFECT OF RISK AND UNCERTAINTY IN PROJECT APPRISAL
5.
PRESENTATION OF THE RESULT
• OBJECTIVES
1.
CONTRIBUTION OF THE PROJECT TO GDP
2.
CONTRIBUTION OF THE PROJECT TO THE POOR POPULATION
3.
CONTRIBUTION OF THE PROJECT IN PROTECTING OR IMPROVING THE ENVIRONMENTAL
CONDITIONS
4.
REDUCING THE REGIONAL IMBALANCES
5.
USE OF SCARCE RESOURCES
• DIFFERENCE
• SOCIAL COST BENEFIT ANALYSIS
1.
REAL COST OF DIRECT COST
2.
COST AND REAL BENEFIT OF DIRECT BENEFIT
3.
TAKE INTO ACCOUNT INDIRECT COST AND INDIRECT BENEFIT
4.
MOTIVE IS TO MEASURE THE BENEFIT WHICH ACCRUED TO NATION
• COMMERCIAL PROFITABILITY
1.
MARKET PRICES OF DIRECT COST AND DIRECT BENEFIT
2.
TAKES INTO ACCOUNT DIRECT COST AND DIRECT BENEFIT
3.
MOTIVE IS TO MAXIMIZE THE PROFIT
•
BASIC APPRAOCHES
1.
UNIDO APPROACH
2.
LITTLE AND MIRRLESS APPROACH
• APPROACHES
•
UNIDO APPROACH ( UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION)
•
LITTLE –MIRRLEES APPROACH
THE SUITABILITY OF THE APPROACH DEPENDS UPON:-
1.
PRESENT LEVEL OF THE COUNTRY
2.
EXTENT AND NATURE OF FUTURE DEVELOPMENTS
• UNIDO APPROACH
•
FAMOUS ECONOMISTS STEPHEN MARLIN,AMARTYA SEN
AND PARTHA DAS GUPTA PREPARED A MANUAL
•
IT PUBLISHED THIS MANUAL IN 1972 UNDER THE TITLE “ GUIDELINES FOR PROJECTS
EVALUATION” IT BROUGHT ANOTHER MANUAL TITLED “GUIDE TO PARTICULAR PROJECT
APPRAISAL” TO SIMPLIFY THE COST BENEFIT ANALYSIS OF PROJECTS FOR PRACTICAL
APPLICATION.
•
IT PLACES EMPHASIS ON AGGREGATE CONSUMPTION FOR THE REASON THAT IT IS
ONE OF THE IMPORTANT PARAMETERS FOR THE MEASUREMENT OF THE STANDARD OF LIVING.
CONSUMPTION LEVEL IS MEASURED BY MEASURING CONSUMER’S SURPLUS AND CONSUMER’S
WILLINGNESS TO PAY
•
BASED ON THE ASSUMPTION : A PROJECT MAY AFFECT
1.
TOTAL CONSUMPTION
2.
TOTAL PRODCUTION
3.
IMPORT/EXPORT
• UNIDO APPROACH
1.
IF THE PROJECTS AFFECTS PRODUCTION: SHADOW
PRICE IS BASED ON COST OF PRODUCTION
2.
IF THE PROJECT AFFECTS
CONSUMPTION SHADOW PRICE IS BASED ON WHAT CONSUMERS ARE WILLING TO PAY
3.
IF THE PROJECT AFFECTS
THE IMPORT/EXPORT THE SHADOW PRICE IS BASED ON BORDER PRICES THAT IS THE
FOREIGN EXCHNAGE VALUE
4.
FOR SHADOW PRICES THE
GOODS ARE CLASSIFIED INTO TRADEABLE AND NON TRADABLE
• STAGES ( UNIDO APPROACH)
1.
ARRIVING AT THE FINANCIAL PROFITABILITY OF THE PROJECT BASED ON MARKET
PRICES
2.
USING SHADOW PRICES FOR THE RESOURCES TO ARRIVE AT THE NET BENEFIT OF THE
PROJECT AT ECONOMIC PRICES
3.
ADJUSTMENT OF THE NET BENEFIT FOR THE PROJECT’S IMPACT ON SAVING AND
INVESTMENT
4.
ADJUSTMENT FOR THE NET BENEFIT FOR THE PROJECT’S IMPACT ON INCOME
DISTRIBUTION
5. ADJUSTMENT OF THE NET BENEFIT FOR THE GOODS
PRODUCED WHOSE SOCIAL VALUES DIFFER FROM THEIR ECONOMIC VALUES.
- FINANCIAL
APPRAISAL
- PRIVATE SECTOR MEASURE THE FINANCIAL PROFITABILITY ON THE BASIS OF
MARKET PRICES BUT FINANCIAL APPRAISAL OF PUBLIC SECTOR PROJECTS THE
OBJECTIVE IS THE MAXIMIZATION OF SOCIAL WELFARE.
• EFFECT OF SHADOW PRICES
•
SOCIAL COST BENEFIT ANALYSIS , THE MARKET PRICES OF BOTH INPUTS AND OUTPUTS
OF A PROJECT ARE REQUIRED TO BE CORRECTED SUITABLY IF THEY DO NOT REPRESENT THE
REAL PRICES OF INPUTS/OUTPUTS. SUCH CORRECTED PRICE OF input/output is known as
shadow price.
•
LIKE STATE ELECTRICITY BOARD MAY PRODUCE ELECTRCITY AT 5.50 PER UNIT
•
A NEWLY SET UP UNIT MAY BE CHARGED
RATE AT 4.50 PER UNIT OF ELECTRIC POWER CONSUMED IN THE FIRST YEAR
•
SECOND YEAR IT IS 4.75
•
THIRD YEAR IT IS 5.
• SOCIAL COST BENEFIT ANLSYSIS : IT IS 5.50 PER
UNTI WHICH IS THE SHADOW PRICE
•
SHADOW PRICES
SHADOW PRICE MEANS THE ESTIMATED PRICE OF A GOOD OR SERVICE FOR WHICH NO MARKET PRICE
No comments:
Post a Comment