Full text: Study week on the econometric approach to development planning

The estimated benefits of the project are then sum of the values 
of the physical outputs produced during each year of its life. 
discounted to the date of inception at the social rate of discount. 
The costs are the construction cost plus estimated annual oper- 
ating costs similarly discounted. It will be seen that this pro- 
cedure is, in essence, very similar to the one followed in capital 
budgeting by private firms. The only divergence comes now: 
note is taken of the various nonmonetary effects of the project, 
frequently referred to as « intangibles ». No attempt is made 
to incorporate these « intangibles », which may be very tang 
ible indeed, into the analysis: that task is left for higher autho: 
rity and, in consequence, frequently is never performed. It is 
a fact of government sociology that as a result of this procedure 
the monetary effects of a project receive more emphasis in 
decision making than they should in comparison with the non- 
monetary effects, which tend to be slighted because they are 
difficult to measure and express. Nevertheless, that is how 
things are with the current state of the art. 
The econometrician has two or three suggestions to make 
for coping with this inadequacy, and the main object of this 
paper is to consider them. One expedient that I shall not con- 
sider is that we attempt to ascertain a full-fledged social utility 
function in which the various objectives I have listed above 
enter as arguments. I am interested only in devices that might 
conceivably be implemented. 
The first suggestion that comes to mind, however, comes 
pretty close to that. It is that the analyst should attempt to 
establish « shadow prices » for the various objectives, thereby 
becoming able to compute a value-sum that can be compared 
unidimensionally with a value-sum of costs or value-sums of 
benefits from alternative projects. These shadow prices would 
reflect the willingness of the community to trade off one type 
of benefit against another. For example, redistribution effects 
could be incorporated by ascertaining that the community was 
willing to sacrifice a dollar’s worth of national income in order 
Dorfman - pag.

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