Social Cost Benefit Analysis

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Business, Social Projects, Estimation of Cost and Benefits, UNIDO and LM approaches

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Social Cost Benefit Analysis – UNIDO and L-M approaches : 

Social Cost Benefit Analysis – UNIDO and L-M approaches For M.B.A, M.Com, M.Sc. And Diploma in Project Management For my Colleagues and Students Joseph Anbarasu

Social Cost Benefit Analysis : 

Social Cost Benefit Analysis Joseph Anbarasu Commercial Cost Benefit Analysis (CBA) Benefit > cost is desirable Therefore, it is nothing but a profitable analysis However what will be the costs and/or the benefits that a Society may have to bear and /or get from the proposed project are  not considered here.

For example : 

For example Joseph Anbarasu Now, if we think about the impact of soaps and cigars on the society, the question may be Does the price of cigar that account of the smoker’s higher probability of hears disease or cancer? Does the price of soap take note of the benefits from the use of soap e.g. reduced risk of spread increases? Obliviously, a commercial entrepreneur can't give well answer to these questions. Example Suppose, a manufacturer produces cigars and sell it Rs 40 a packet, and another manufacturer produces soaps and sell it Rs. 20 per a bar.

What is SCBA? : 

What is SCBA? Joseph Anbarasu Therefore, to reflect the real value of a project to society, one must consider the impact of the project on society Thus, when we evaluate a project from the view point of the society (or economy) as a whole, it is called Social Cost Benefit  Analysis (SCBA)/Economic Analysis

Core Differences between CBA AND SCBA : 

Core Differences between CBA AND SCBA Joseph Anbarasu

Scope of SCBA : 

Scope of SCBA SCBA can be applied to both public and private investments Public Investment: SCBA is important specially for the developing countries where govt. plays a significant role in the Economic development Private investment: Here, SCBA is also important as the private investments are to be approved by various governmental and Quasi-governmental agencies. Joseph Anbarasu

Objectives of SCBA : 

Objectives of SCBA The main focus of SCBA is to determine Economic benefits of the project in terms of shadow prices The impact of the project on the level of savings and investments in the society The impact of the project on the distribution of income in the society; The contribution of the project towards the fulfillment of certain merit wants (self-sufficiency, employment etc) Joseph Anbarasu

Significance of SCBA : 

Significance of SCBA Joseph Anbarasu "CBA is unable to reflect social values. Hence SCBA has been emerged with some interesting significances. These significances Also make the SCBA different from the CBA.

Significance of SCBA : 

Significance of SCBA Joseph Anbarasu

Approaches to SCBA: Two Principal Approaches for SCBA : 

Approaches to SCBA: Two Principal Approaches for SCBA Joseph Anbarasu

UNIDO Approach : 

UNIDO Approach Joseph Anbarasu

UNIDO Approach Stage - 1 : 

UNIDO Approach Stage - 1 Calculation of financial profitability of the project A good technical and financial analysis must be done before a meaningful economic (social) evaluation can be made so as to determine financial profitability. Financial profitability is indicated by the Net Present Value (NPV) of the project, which is measured by taking into Account inputs (costs) and outputs (benefits) at market price. Joseph Anbarasu

UNIDO ApproachStage - 1 : 

UNIDO ApproachStage - 1 Joseph Anbarasu Net Present Value of a Project is calculated shown against it Here, Vt = Value of outputs at market price at time t Ct = Value of inputs at market price at time t K = Discount Rate T = Lifetime of the project Io = Initial Cost at the start of the project The project is viewed as financially feasible if NPV>0

UNIDO Approach Stage - 2 : 

UNIDO Approach Stage - 2 Obtaining the net benefit of the project at economic (shadow) prices The commercial profitability analysis (calculated in stage 1) would be sufficient only if the Project is operated in Perfect market. Because, only in a perfect market, market prices can reflect the social value If the market is imperfect (most of the cases in reality), net benefit of the Project is determined by assigning shadow Prices to inputs and outputs. Therefore, developing shadow pries is very much vital. Joseph Anbarasu

UNIDO Approach Stage - 2 : 

UNIDO Approach Stage - 2 Joseph Anbarasu Shadow prices reflect the real value of a resource (input or output) to society Shadow Prices are also referred as economic prices, accounting prices, economic / accounting efficiency prices etc Shadow prices can be defined as the value of the contribution to the country's basic socio-economic objectives made by any Marginal change in the availability of commodities (Output) or factor of production (input). Example: A project of power station may increase the production of electricity which contributes to one of the socio-economic Objectives of the country.

UNIDO ApproachStage - 2 : 

UNIDO ApproachStage - 2 Numeraire A unit of account in which the values of inputs and outputs are to be expressed. Numeraire is determined at Domestic currency (BDT) rather than border price. Present value rather than future value, Because, "a bird in the hand is worth two in the bush' Constant price rather than current price Joseph Anbarasu

UNIDO ApproachStage -2 : 

UNIDO ApproachStage -2 Tradability: Tradability refers to whether a good or service is tradable or non-tradable; if tradable whether is fully traded or Non-traded A good/service is tradable in the absence of or within limited trade barriers A tradable good/service is actually traded when the import (export) supply is perfectly elastic over the relevant range of volume all additional demand (production) must be made (consumed) by import (export) due to the full capacity in the domestic Industry (fulfillment of demand by domestic consumer) Joseph Anbarasu

UNIDO Approach - Stage 2General Principles Of Shadow Pricing : 

UNIDO Approach - Stage 2General Principles Of Shadow Pricing The import (CIF) price is less or the export (FOB) price is more than the domestic cost of production A good/service is non-tradable; if It import (CIF) price is greater than its domestic cost of production and/or its export (FOB) price is less than its domestic cost of production. A tradable good/service that is not actually traded is called non-traded. Joseph Anbarasu

UNIDO Approach - Stage 2General Principles of Shadow Pricing : 

UNIDO Approach - Stage 2General Principles of Shadow Pricing Joseph Anbarasu Sources of Shadow Pricing: Depending on the impact of the project on national economy, there are three sources of shadow pricing:

UNIDO Approach - Stage 2General Principles of Shadow pricing : 

UNIDO Approach - Stage 2General Principles of Shadow pricing Taxes: If the project augments domestic production, taxes should be excluded if the project consumes existing fixed supply of non-traded inputs, tax should be included For fully traded goods, tax should be ignored Joseph Anbarasu

UNIDO Approach - Stage 2General Principles of Shadow pricing : 

UNIDO Approach - Stage 2General Principles of Shadow pricing Joseph Anbarasu Consumer Willingness to Pay (CWP) What a consumer wants to spend for a product or service The difference between CWP and actual payment is called consumer surplus

UNIDO Approach - stage 2.Shadow Pricing of Resources : 

UNIDO Approach - stage 2.Shadow Pricing of Resources Joseph Anbarasu Tradable inputs and outputs For a fully traded goods, the shadow price is border price translated into the domestic currency at shadow foreign exchange.

UNIDO Approach - stage 2.Shadow Pricing of Resources : 

UNIDO Approach - stage 2.Shadow Pricing of Resources Assuming that a project uses two indigenous equipments costing Rs.500000. These equipments can be exported at Rs. 10000. The Shadow foreign rate of USD 1 is equivalent to Rs. 68. Therefore, shadow price of these equipments (inputs) are (USD 10000xRs.68) = Rs. 680000 Joseph Anbarasu

UNIDO Approach - stage 2.Shadow Pricing of Resources..Non-tradable Inputs and outputs : 

UNIDO Approach - stage 2.Shadow Pricing of Resources..Non-tradable Inputs and outputs Joseph Anbarasu

UNIDO Approach - stage 2.Shadow Pricing of Resources : 

UNIDO Approach - stage 2.Shadow Pricing of Resources Assuming that for a project, one-half of the required input is collected from additional domestic production which has a Domestic cost of Rs. 200000 and the rest one half is collected from diversion from other consumers who are willing to pay Rs. 300000. Therefore the shadow price of the inputs will Be: Cost of production + consumer willingness to pay = Rs (200000+300000) = Rs. 500000 Joseph Anbarasu

UNIDO Approach - stage 2.Shadow Pricing of Resources : 

UNIDO Approach - stage 2.Shadow Pricing of Resources Joseph Anbarasu

UNIDO Approach - stage 2.Shadow Pricing of Resources : 

UNIDO Approach - stage 2.Shadow Pricing of Resources Assuming that a newly establishes power station having a total capacity of 100 million units electricity, charges tariff at Rs. 1 for per unit electricity consumption. The consumers of that particular area are willing to pay Rs. 1.20 for per unit. Therefore, the shadow price is (Rs. 1.20 x10 million) = Rs. 120 million, instead of Rs. 100 million Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources : 

UNIDO Approach - Stage 2Shadow Pricing of Resources Externalities An externality is an external effect (either beneficial or harmful) causes from a project which is - not deliberately created by the project sponsors but is an incidental outcome beyond the control of the persons who are benefited or affected by it not traded in the market place Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources : 

UNIDO Approach - Stage 2Shadow Pricing of Resources Near about 100000 people had lost lands 5680 acres due to the project of River Bridge People may be affected by erosion and flood conditions brought about by changes to the river which result from the construction Activities of a bridge Environmental pollution created by brick field A project of planting trees for commercial purpose may give protection to the environment against the increasing global warmth. Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources : 

UNIDO Approach - Stage 2Shadow Pricing of Resources Shadow Pricing of Externalities Although valuation of external effects is difficult as they are often intangible in nature and there is no market price, shadow pricing of externalities may be made ;indirect The harmful effect of bridge may be measured by the consumer willingness to pay for the output of the people which ahs been reduced due to the bridge The cost of pollution may be estimated in terms of the loss of earnings as a result of damage to health caused by it Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources - Labour : 

UNIDO Approach - Stage 2Shadow Pricing of Resources - Labour Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources : 

UNIDO Approach - Stage 2Shadow Pricing of Resources Capital Investment of capital in a project causes to happen two things Financial resources are converted into physical assets Financial resources are withdrawn from national pool of savings. Thus alternative projects are foregone and there is an opportunity cost of it The shadow price of physical assets is calculated in the same manner in which inputs and outputs are calculated. The opportunity cost of capital (shadow price of capital) depends on the source from which the capital has generated. Joseph Anbarasu

UNIDO Approach - Stage 2Shadow Pricing of Resources : 

UNIDO Approach - Stage 2Shadow Pricing of Resources Joseph Anbarasu

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu Determining the shadow price of One-shot costs Annual costs Annual benefits Calculating Net-benefit of the project from social point of view Here Vt = Shadow price of Benefit at time t Ct = Shadow price of Operating Expenses at time t K = Social Discount rate T = Lifetime of the project Io = Initial cost at the start of the project

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu An Illustration The Government is considering a project which would supply water for irrigation, generate electricity and provide a measure of protection against floods. The project is expected to have 25 year life time. The costs and benefits of the project are: COSTS: Power equipment costing Rs. 30 crore. (Additional Information: This equipment can be exported at USD 4.5 million. The shadow price of per dollar is Rs. 70)

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu 2. 30000 tones of cement produced indigenously are used in the project at a cost of Rs 6000. (Additional Information: However, one half of the cement will come from additional domestic production which cost Rs. 5000 per ton and one half come from diversion from other consumers who are willing to pay Rs. 6500 for per ton)

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu 3. Other construction materials (sand, bricks, steel etc.) cost 20 crore (Additional Information: these materials comes from additional production, production cost of which is 15 crore)

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu 3. Other construction materials (sand, bricks, steel etc.) cost 20 crore (Additional Information: these materials comes from additional production, production cost of which is 15 crore)

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices : 

UNIDO Approach - stage 2.Obtaining Net Benefit of the Project at Shadow Prices Joseph Anbarasu 4. Two million man days of unskilled labour for which the project committee decided to pay a daily wage of Rs. 100. (Additional Information: The Shadow Price of unskilled labour is Rs. 80 per day) 5. Skilled labour costing Rs. 5 crore 6. Operating and Maintenance cost of the project will be Rs. 7.5 crore annually. (However, the operating cost should be Rs. 6.5 crore from social view point)

Obtaining Net benefit of the projectAn Illustration : 

Obtaining Net benefit of the projectAn Illustration Joseph Anbarasu Benefits 1. 0.50 million acres of land will be irrigated. The Government will charge the water levy at Rs. 150 for per acre. (Additional information: the value of additional output acre due to the irrigation will be Rs. 500 per acre).

Obtaining Net benefit of the projectAn Illustration : 

Obtaining Net benefit of the projectAn Illustration Joseph Anbarasu Benefits 2.100 million Units of electricity will be generated. The electricity will be generated at Rs. 1 per unit (Additional Information: The consumers are willing to pay Rs. 1.5 for per unit of electricity) 3.Flood damages can be saved by Rs. 2 crore annually. However, the Government will not able to collect anything for this.

Obtaining Net benefit of the project : 

Obtaining Net benefit of the project Joseph Anbarasu An Illustration Cost and Benefit of the Project (at a glance) One-shot cost:

Obtaining Net benefit of the projectAn Illustration: Cost and Benefit of the Project : 

Obtaining Net benefit of the projectAn Illustration: Cost and Benefit of the Project Joseph Anbarasu

Determining Project Profitability from the Private Angle : 

Determining Project Profitability from the Private Angle Joseph Anbarasu Net Present Value of a Project is calculated Here Vt = Annual price of Benefit at time t =17.5 Ct = Annual price of Operating Expenses at time t = 7.5 K = Discount rate = 10% T = Lifetime of the project = 25 years Io = Initial cost at the start of the project = Rs. 93 Therefore, the project is generating a negative NPV of Rs. 2.23 crore from Private Angle

Determining Project Profitability from the Social Angle : 

Determining Project Profitability from the Social Angle Joseph Anbarasu Net Present Value of a Project is calculated Here Vt = Shadow price of Benefit at time t =42 Ct = Shadow price of Operating Expenses at time t = 6.5 K = Social Discount rate = 10% T = Lifetime of the project = 25 years Io = Initial cost at the start of the project = Rs. 84.75 From the view point of society, the project is generating a positive of Rs. 237.48 crore

UNIDO Approach...Stage 3: Adjustment for the impact of the project on Savings and investment : 

UNIDO Approach...Stage 3: Adjustment for the impact of the project on Savings and investment The purpose of this stage is to Determine the amount of income gained or lost because of the project by different income groups (such as project other than business, government, workers, customers etc) Evaluate the net impact of these gains and losses on savings Measure the adjustment factor for savings and thus the adjusted values for savings impact Adjust the impact on savings to the net present value calculated in stage two. Joseph Anbarasu

UNIDO Approach - stage 3Measurement of Gain or loss : 

UNIDO Approach - stage 3Measurement of Gain or loss A project appoints 1000 labourers at a wage rate of Rs. 150 per day. These workers were ready to work for a daily wage of Rs. 100. Therefore, the gain of the group of 1000 workers from the project (150-100)x1000 = 50000 per day. Evaluation of the Net Impact on Savings Net savings Impact of the project = ΣΔYi MPSi Here, Δ Yi = change in income of group i as a result of the project MPSi= Marginal Propensity to save a group i Joseph Anbarasu

UNIDO Approach - stage 3 : 

UNIDO Approach - stage 3 Joseph Anbarasu Assuming that the income gained or lost by 4 group is Workers (W) = Rs. 250000, Consumer(C) = Rs. -700000, Project (P) = Rs 1000000, External (E)=Rs.500000 The Marginal Propensity to Save of these four groups is: MPSw=0.04, MPSc=0.25, MPSp=0.4 and MPSe = 0.3 Therefore, the net impact of the project on savings is: {250000 x0.04+(-700000) x 0.25 + 100000 x 0.4 + 500000x0.3} = Rs. 475000

UNIDO Approach - stage 3 : 

UNIDO Approach - stage 3 Joseph Anbarasu Adjustment Factor for Savings (AFs) AFs measure the percentage by which the social value of investment of one Re. exceeds social value of consumption one rupee. Here, MPC = Marginal Propensity to Consume MPS = Marginal Propensity to Saving MPcap = Marginal Productivity of Capital CRI = Consumption Rate of Interest (Social Discount Rate)

UNIDO Approach - stage 3Adjustment Factor for Savings (AFs) : 

UNIDO Approach - stage 3Adjustment Factor for Savings (AFs) Joseph Anbarasu Assuming that MPC, MPS, MPcap and CRI of an economy is given: MPC = 70%, MPS = 30%, MPcap=25% and CRI=10% Therefore, adjustment factor for savings is AFs Adjusted Value of the impact of the project on savings: Adjusted value of Savings = (Net impact on savings X AFs) = Rs. 475000x6 = Rs. 28,50,000

UNIDO Approach - stage 3 : 

UNIDO Approach - stage 3 This Rs. 2850000 is now added to the NPV of the project calculated in stage 2(Rs.237.48 crore) Therefore, the adjusted NPV at this stage will be Rs. (237.48+.285) = Rs. 237.765 crore Joseph Anbarasu

UNIDO Approach : 

UNIDO Approach Stage 4: Adjustment for the impact of the project on Income distribution Govt. considers a project as an investment for the redistribution of income in favour of economically weaker sections or economically backward regions This stage provides a value on the effects of a project on income distribution between rich and poor and among regions Distribution Adjustment Factor (Weight) is calculated and the impacts of the project on income distribution have been valued by multiplying the adjustment factor with the particular income of a group. This value will then be added to the net present value re-calculated in stage three to produce the social net present value of the project. Joseph Anbarasu

UNIDO Approach - Stage 4Determination of Weights : 

UNIDO Approach - Stage 4Determination of Weights Joseph Anbarasu If there are only two groups in a society, poor and rich, the determination of weight is just an iterative process between the analysts (at the bottom) and the planners (at the top). This is called "bottom-up" approach. When more than two groups are involved, weights are calculated by the elasticity of marginal utility of income. The marginal utility of income is the weight attached to an income is: where wi = weight of income at ci level ci = level of income of group i b = base level of income that has a weight of 1 n = elasticity of the marginal utility of income

UNIDO Approach - Stage 4 : 

UNIDO Approach - Stage 4 Joseph Anbarasu Assuming that the worker group gains an income of RS 250000 from a project, the base level of income is Rs. 50000 which has a weight if 1 and elasticity of Marginal Utility of Income is 0.20. Therefore, weight is Therefore, value of the impact of the project on income distribution to this group is Rs 250000x0.72 = Rs. 180000 Now this value will be added to the net present value adjusted in stage three. Therefore, Adjusted NPV in this stage will be Rs (237.765x0.018) = Rs. 237.78 crore

UNIDO Approach - Stage 5Adjustment for Merit and Demerit Goods : 

UNIDO Approach - Stage 5Adjustment for Merit and Demerit Goods If there is no difference between the economic value of inputs and outputs and the social value of those, the UNIDO approach for project evaluation ends at stage four. In practical, there are some goods (merit goods), social value of which exceed the economic value (e.g oil, creation of employment etc) and also there are some goods (demerit goods), social value of which is less than their economic value (e.g., cigarette, alcohol, high -grade cosmetics etc) Adjustment to the NPV of stage 4 is required if there is any difference between the social and economic value Joseph Anbarasu

UNIDO Approach - Stage 5 : 

UNIDO Approach - Stage 5 The steps of adjustment procedure are: Estimating the present economic value Calculating the adjustment factor Multiplying the economic value by the adjustment factor to obtain the adjusted value Adding or subtracting the adjusted value to or from the NPV of the project as calculated in stage four. Joseph Anbarasu

UNIDO Approach - Stage 5... : 

UNIDO Approach - Stage 5... An alcohol factory is being constructed. The present economic value of the project is Rs. 237.78 crore (Adjusted NPV up to stage 4). The output of the project has no social value than its cost of production. Cost of production is the 60% of the economic price. Therefore, adjustment factor is: ((60/100)-1) = -0.4 Therefore, the adjusted value = (Rs. 237.78 crore x - 0.4) = Rs. -95.11 crore The NPV of the project in terms of socially acceptable consumption is Rs. 237.78 - 95.11) = Rs. 142.67 crore. Joseph Anbarasu

L-M Approach : 

L-M Approach Joseph Anbarasu I.M.D. Little and James A. Mirrless have developed an approach to SCBA which is famously known as L-M approach. The core of this approach is that the social cost of using a resource in developing countries differs widely from the price paid for it Hence, it requires Shadow Prices to denote the real value of a resource to society.

L-M ApproachFeature of L-M Approach : 

L-M ApproachFeature of L-M Approach Joseph Anbarasu L-M Numeraire is present uncommitted social income. L-M methods opt for savings as the yardstick of their entire approach. Present savings is more valuable to them than present consumption since the savings can be converted into investment fore future L-M approach rejects the 'consumption' Numeraire of UNIDO approach since the LM exponents feel that the consumption of all level is valuable

L-M Approach...Features of L-M Approach : 

L-M Approach...Features of L-M Approach This approach measures the cost and benefits in terms of international or border prices. Why do they prefer Border Prices? It is because that the border prices represent the correct social opportunity costs or benefits of using or producing traded goods. Joseph Anbarasu

L-M Approach...Social Cost Benefit Analysis (SCBA) : 

L-M Approach...Social Cost Benefit Analysis (SCBA) The resources of input and output of a project are classified into: Labour Traded goods Non-traded goods Therefore, to find out the real value of these resources, the following values are to be calculated Shadow wage rate (SWR) Shadow price of traded goods Shadow price of Non-traded goods Joseph Anbarasu

L-M Approach...a. Shadow Wage Rate (SWR) : 

L-M Approach...a. Shadow Wage Rate (SWR) The reason for computing the SWR is to determine the opportunity cost of employing an additional worker in the project. For this we have to determine The value of the output foregone due to the use of a unit of labour The cost of additional consumption due to the transfer of labour Joseph Anbarasu

L-M Approach.. : 

L-M Approach.. L-M suggest the following formula for calculating the SWR SWR = m+(c'-c)+(1-(1/s))*(c-m) c'-c = cost of urbanization (1-(1/s))*(c-m) = cost of additional committed consumption c'= additional resources devoted to consumption c = consumption of wage earner 1 = value of uncommitted resources 1/s = value of committed resources c-m = additional consumption of labour c'(transportation system, e.g. road construction, motor vehicles) - c (e.g. bus rent) = cost of urbanization (e.g. road construction) Joseph Anbarasu

L-M Approach.. : 

L-M Approach.. b) Shadow price of Traded Goods Shadow price of traded goods is simply its border or international price. if a good is exported, its shadow price is its FOB Price if a good is imported, its shadow price is its CIF price. c) Shadow price of Non-traded goods Non-traded goods are those which do not enter into international trade by their very nature. (e.g., land, building, transportation) Hence, no border price is observable for them. Joseph Anbarasu

L-M Approach.. : 

L-M Approach.. Ideally, shadow price of non-traded goods is defined in terms of Marginal Social Cost (MSC) and the marginal social benefit (MSB) L-M suggest that the monetary cost of non-traded goods be broken down into Labour ---- SWR (Social Wage Rate) Tradable ----- SCF (Social Conversion Factor) Residual components ------(SCF) Joseph Anbarasu

L-M Approach..Accounting Rate of Return (ARR): : 

L-M Approach..Accounting Rate of Return (ARR): This is the rate used for discounting social profits. Experience is the best guide to the choice of ARR ARR should be such that all mutually compatible projects with positive present social value can be undertaken Joseph Anbarasu

A Comparative Example of UNIDO and L-M Approach : 

A Comparative Example of UNIDO and L-M Approach Joseph Anbarasu 1. Power equipment costing Rs 300 million. This equipment can be exported at USD 4.5 million. The shadow price of per dollar is Rs. 70

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 2. 30000 tones of cement produced indigenously are used in the project at a cost of Rs 6000. one third of the cement will come from additional domestic production which cost Rs. 5000 per tone and two third will come from diversion from other consumers who are willing to pay Rs. 6500 for per ton. The shadow price of per dollar is Rs 70

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 3. Other construction materials (sand, bricks, steel etc) cost 200 million. These materials comes from additional production, production cost of which 150 million.

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 4. Two million man days of unskilled labour for which the project committee decided to pay a daily wage of Rs 100. The shadow price of unskilled labour is Rs. 80 per day.

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 5. Skilled labour costing Rs. 50 million. However, this cost reflects what others are willing to pay for the skilled labour.

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 6. Operating and maintenance cost of the project will be Rs. 75 million yearly. However, the operating cost should be Rs. 65 million from social view point

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu Benefits 1. 0.5 million acres of land will be irrigated. The Govt. will charge the water levy at Rs. 150 for per acre. The value of additional output per acre due to the irrigation will be Rs. 500 per acre

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu Benefits 2. 100 million units of electricity will be generated for domestic use. The electricity tariff will be charged at Rs. 1 per unit. The consumers are willing to pay Rs. 1.5 for per unit of electricity

A Comparative Example of UNIDO AND LM Approach : 

A Comparative Example of UNIDO AND LM Approach Joseph Anbarasu 3. Flood damages can be saved by Rs. 20 million annually

UNIDO VS. LM : 

UNIDO VS. LM Joseph Anbarasu Similarities Calculation of Shadow prices to reflect social value Usage of Discounted Cash Flow Techniques Taking into account about the effect of a project on savings, investment and income of a society

References: : 

References: Chandra, Prasanna, Project: Planning, Analysis, Financing, Implementation, and Review, Tata McGraw-Hill Publishing co. Ltd, New Delhi, 2010 Little, I.M.D & J. Mirrlees, Manual of Industrial Project Analysis in Developing Countries, Vol. II, OECD, 1968 UNIDO, Guidelines for project evaluation, 1981. www. citeecho.net/jmba Joseph Anbarasu

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