Summary

Abstract

This study concerns project planning or, as it may also be called, project evaluation or benefit-cost analysis. It is a study of criteria for the design, selection and implementation of projects, with the basic objective of maximizing national welfare. Chapter 1 discusses that national welfare is not synonymous with national income and that the maximization of national income should not be accepted as a strategy for development since it excludes a number of important welfare dimensions. Specifically, consumer surpluses, disutilities of effort, scarcity values of goods and services, externalities, and the distribution of income between persons and over time are aspects of welfare which are not incorporated in the concept of national income. There is, therefore, a fundamental difference between a normal profitability analysis which uses basically the price data entering the national income accounts, and benefit-cost analysis. While profitability analysis uses market prices for inputs and outputs, benefit-cost analysis uses imputed values — the real values of benefits and costs — to determine whether an investment is worth undertaking. Traditional benefit-cost analysis — the economic evaluation of projects which considers all the above mentioned aspects of welfare except income distribution — is discussed in Part I of the study. Income distribution considerations are taken into account in Part II, and the analysis there is referred to as the social evaluation of projects.