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Introduction
GDP and National Income statistics have grown in importance in informing
policies
These statistics have crucial drawbacks:
Income inequality not taken into account
Problem can be overcome by augmenting National Accounts with
measures of inequality (Gini coefficient)
Costs of growth ignored
Costs are largely non-market in nature
Currently no comprehensive measure to take into account these
costs
Huge outlay involved in compiling such accounts
CBA may be a better tool to account for costs of growth, in
massive or largely impactful public projects
Fundamentals of CBA
Fundamentals of CBA for both developed and developing countries are the
same:
CBA must be complete
Valuations must reflect the true social cost/benefit
Time and uncertainty must be taken into account
Double counting must be avoided
Transfer payments should be ignored
Evaluation of Suitability of
Valuation Techniques
Differing conditions
Differing suitability of valuation techniques
Broad categories of techniques
i.
Revealed preference approaches
ii. Stated preference approaches
iii. Benefit-transfer method
iv. A newer approach: Paired comparison method/damage schedules
approach
Year of Study
Items of Study
Peterson and
Brown
1998
Rutherford et
al.
1998
Cheunpagde
et al.
2001
Quah et al.
2006
Ong et al.
2008
Evaluation of Suitability of
Valuation Techniques
All valuation techniques have relative advantages and disadvantages
Governments must exercise care in deciding which techniques are most
suitable for their purposes
Conclusion
Should CBA be used as a decision tool for developing countries?
Definitely, but with three conditions:
1. CBA should only be a guide, not the sole arbiter of projects
2. Care must be exercised to choose appropriate valuation techniques
3. Inequity issues should be considered independently
References: CBA