Project Appraisal, Social Cost-Benefit Analysis and Shadow Wages

Abstract

The literature and discussion about project choice and the allocation of resources has been dominated in recent years (since 1970) by social cost-benefit analysis. Social cost-benefit analysis is really the public analogue or equivalent of the present value method of private investment appraisal, but it has to take many things into account which adds to its complexity. The technique is recommended for the appraisal of publicly financed investment projects in order to allocate resources in a way most profitable to society, recognising that the market prices of goods and factors of production do not necessarily reflect their social value and costs, respectively, and, given that society is concerned with the future level of consumption as well as the present, the level of current saving may be sub-optimal. In a sense, social cost-benefit analysis tries to incorporate all the considerations that previous criteria have stressed as important to consider, and thus may be said to have superseded them.