SOCIAL COST BENEFIT ANALYSIS (SCBA)
SCBA, called economic analysis, is a methodology
developed for evaluating investment projects from the point
of view of the society or economy as a whole. SCBA is
relevant to developing countries where governments are
playing a significant role in the economic development. It is
also relevant to private investments as these have to be
approved by various governmental and quasi-governmental
agencies which bring to bear larger national considerations
in their decisions.
SCBA aids in evaluating individual projects within the
planning framework which spells out national economic
objectives and broad allocation of resources to various
sectors. SCBA is concerned with tactical decision making
within the framework of broad strategic choices defined by
planning at the macro level. The perspectives and
parameters provided by the macro level plans serve as the
basis for analyzing and appraising individual projects.
1. Rationale for SCBA
In SCBA the focus is on the social costs and benefits of the
project. These often tend to differ from monetary costs and
benefits of the project. The major sources of discrepancy are:
\ue000Taxes and subsidies
\ue000Concern for savings
\ue000Concern for redistribution
Where market imperfections exist, market prices do not
reflect social values. The common market imperfections
A project may have beneficial as well as harmful
effects. Though these are ignored in assessing the monetary
benefits to the project sponsors, in SCBA, externalities
are relevant as in such analysis all costs and benefits,
irrespective whom they accrue and whether they are paid
for or not, are relevant.
Taxes are monetary costs and subsidies are monetary
gains. From the social point of view, however, taxes and
subsidies are generally regarded as transfer payments and
hence considered irrelevant.
Concern for Savings
Unconcerned about how its benefits are divided between
consumption and savings, a private firm does not put
differential valuation on savings and consumption. From a
social angle, the division of benefits between consumption
and savings ( which leads to investment ) is relevant.
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