cost-benefit analysis - m fouzul kabir khan,phd - upload成本效益分析- m fouzul卡比尔汗，博士上传

1Fin650: Project Appraisal Lecture 9Comparison of Financial and Economic AppraisalAnalyzing Economic Costs and Benefits in an Existing MarketConsumer surplusProducer surplusAnalyzing Economic Costs and Benefits in an Existing Marketp The gross economic benefits from the consumption of the output from this industry are greater than the financial revenues received by the suppliers due to the consumer surplus enjoyed by the consumers of the output. p Economic cost of producing the output is less than the financial revenues received by the suppliers due to the producer surplus enjoyed by the suppliers. p The implication of these two facts is that the financial price of a unit may be different from its economic price even in the absence of distortions.4Analyzing the Economic Benefits of an Output Produced by a Project Economic Benefits of a New Project in an Undistorted Market:Upward sloping supply (a large project) 5Analyzing the Economic Benefit of an Output (subject to tax) Supplied by a Large Project6Analyzing the Economic Cost of an Input Demanded by a Project (Contd)p If the quantity demanded by the project is relatively small compared to the size of the market then there will only be a very small change in the market price. p In such a situation and given that we are operating in an undistorted market, the gross financial cost to the project will be equal to the gross economic cost. p A difference only arises when the change in the quantity demanded by the project is sufficiently large to have a large impact on the prevailing market price.7Analyzing the Economic Cost of an Input Demanded by a Project (Contd)p If the quantity demanded by the project is large compared to the size of the market then there will only be a change in the market price.p Government purchasing landn Purchase price, P2*(q-q1)n Economic costs p Land taken through eminent domainn Economic costs 8Analyzing the Economic Cost of an Input Demanded by a Project Economic Cost of an Input Demanded by a Project in an Undistorted Market: Inelastic supply9Analyzing the Economic Cost of an Input Demanded by a Project Economic Cost of an Input Demanded by a Project in an Undistorted Market:Upward sloping supply curve and a large Project 10Analyzing the Economic Cost of an Input (subject to tax) Demanded by a Projectp Large project subject to purely revenue generating input taxp General principles:n When a project reduces the quantity of input available for other people, use the willingness to pay (as indicated by the demand curve) as valuen When a project increases the quantity of input that the market must produce, use marginal cost for the value of the added inputn Tax is treated as transfer11Analyzing the Economic Cost of an Input (subject to tax) Demanded by a Project12Class ExercisepA project uses large quantity of cements to build a bridge. Cements are subject to a Tk. 1/bag tax and 100 million bags will be used to build the bridge. As a result of the bridge, the price of cement including the tax, will rise to from Tk. 2 to Tk. 2.30 per bag and private consumers are expected to decrease their consumption by 20 million bags. What costs should be attached to this input?13Analyzing the Economic Cost of an Input (subject to taxes related to externalities) Demanded by a Project14Economic Evaluation of Non-Tradable Goods and Services in Distorted Marketsp Distortions are defined as market imperfections. p The most common types of these distortions are in the form of government taxes and subsidies. Others include quantitative restrictions, price controls, and monopolies. p We need to take the type and level of distortions as given and not changed by the project when estimating the economic costs and benefits of projects. p The task of the project analyst or economist is to select the projects that increase the net wealth of country, given the current and expected regime of distortions in the country.15Valuation of Benefits in Distorted Marketsp If market or government failures distort the relevant product market, then project benefits are measured by the changes in social surplus resulting from the project plus net revenues generated by the project p Monopolyn As in the competitive case, the social surplus generated by the output produced and sold in the monopolist is represented graphically by the area between the demand schedule and the marginal cost curve that is to the left of the MR and MC curvesp Social surplus above the price is received by the consumers and that below the price is captured by the producerp Monopolist is a part of the society; therefore benefits accruing to them count.p Breaking the monopoly will increase social surplus Deadweight loss would disappear Consumers will capture a part of the monopolists producers surplus, viewed as transfer 16Valuation of Benefits in Distorted Markets17Valuation of benefits in Distorted Marketsp Natural Monopolyn Four policiesp Allow monopoly, deadweight loss abc, monopoly profits=Pmafgp Regulate monopoly, set PR = AC, eliminates monopoly profits, transferring social surplus to persons using the road, expands output, reduces deadweight loss from area abc to area dec, societys benefit adebp Require road authority to set Pc , eliminates deadweight loss, price is less than AC, revenue no longer cover costs, subsidy would be requiredp Free access, marginal costs exceed willingness to pay, deadweight loss chQo, no toll revenue, entire construction and operation costs have to be subsidized 18Valuing Impacts from Observed Behaviorp In project analysis we estimate change in social surplus to value impact of the programme/project n Need to know the shapes of the supply and demand curvespThere are well functioning competitive markets, know only one point on the demand and supply curves, represented by the equilibriumpGoods that are rarely traded in markets-health and safety, pollutions, access to scenic areaspCommodities that are traded in imperfect markets, monopoly, asymmetric information, and externalities19p Estimating benefits and cost based on demonstration or pilot programsp Alternative evaluation designsn Classical experimental design with or without baseline datan Simple before and after comparisonn Non-experimental comparison with or without baseline datap Limited applicationsn Employment and training programs, people oriented servicen A new dam, on a small scale, pilot basis cannot be donep Advantagesn A bad idea can be abandonedn Needed adjustment in the program may be madep Disadvantagesn May not readily translate into a large-scale programn Uncertainty concerning external validityDemonstrations20nThree possibilitiespKnowing one point on the demand curve and its slope or elasticitypExtrapolating from a few points, know a few points on the demand curve that can be used to predict another point of relevance to policy evaluation pEconometric estimation with many observations, have a sufficient number different observations of prices and quantities Direct Estimation of Demand CurvesClass Exercisep Current refuse disposal is 2.6lbs per person per day and disposed off in containers of 20lbsp Currently there is no charge on refuse collectionp Marginal social cost (collection + landfill costs) = 0.6/lbp In new Delhi for each Rupee increase in price of refuse collection reduces wastes by 0.4 lb/p/dp Assume a linear demand curvep Evaluate impact of imposition of a fee of 0.05/lb, i.e. Tk. 1 for each container of 20lbs, MPC is less than MSC22Using a Slope EstimatepLinear demand curvepSlope or elasticity estimates from previous research Assuming 0 = 2.60, 1= - 0.4pEstimating social surplus gain from charging for refuse disposal n A graphical illustration 23Social Surplus Gain from Refuse Fee24p We have an estimate of price elasticity of demand from previous researchn d = 1 p/qn 1 = d q/pn d=-0.12n p = 0.81, and q = 2.62, 1 = -0.40 p Construction of a linear demand curve to measure changes in social surplus requires either a direct estimate of the slope itself or an estimate of the price elasticity of demand and the price and quantity at which the elasticity was estimatedUsing an Elasticity Estimate25p Effect of a fare increase on bus ridershipn If the past fare increase of Tk. 1 resulted in 1000 fewer riders , then it may be reasonable to assume that a further increase of Tk 1 will have the same effectn Assumed functional relationship between the outcome and the policy variablep Linear functional forms can produce very different predictions than constant-elasticity functional formsp Further we extrapolate from past experience, the more sensitive are our predictions to assumptions about functional form p Econometric estimation with many observationsn If many observations of quantities demanded at different prices are available, then it may be possible to use econometric techniques to estimate demand scheduleExtrapolation and Econometric Estimation26Imputing a Demand Curve from Two Points27p Government supply many goods that are also provided by the private sector, e.g. educationp Using price and quantity of an analogous private sector good to estimate the demand curve for a publicly provided good p The market price of a comparable good in the private sector is an appropriate shadow price for a publicly provided good, if it equals the average amount that users of the publicly provided g