Presented by: Harjeet

kaur
1401
Social Cost Benefit Analysis
Social cost-benefit
analysis is associated
with its social impact
Social cost benefit
analysis is a part of
calculating the merits
of a project or a
government policy.
Only after calculating
the opportunity cost of
a project, it is approved
Social Cost Benefit
Analysis
Social Cost benefit Analysis is a
systematic evaluation technique for long-
term decision making in capital projects
appraisal.
It is an a systematic comparison
between the social costs and related
social benefits.
,when we evaluate a project from the
view point of the society (or economy) as
a whole, it is called Social Cost Benefit
Analysis (SCBA) / Economic Analysis
Social Cost Benefit
Analysis
The real value of a project to
society, we must consider the
impact of the project on society :-
Scope of
SCBA  
 Public Investment: SCBA is important
specially for the developing countries where
govt. plays a significant role in the Economic
development
 Private investment: Here, SCBA is also
important as the private investments are to
be approved by various governmental and
Quasi-governmental agencies.
 Commercial vs. Charitable: Most of the
investment projects necessarily involve long
term heavy expenditure. These may be either
pure commercial, like manufacturing of
consumer products, or purely for social
purposes like a charitable hospital. There may
be a project which may serve both purposes.
Objectives of SCBA : 
The main focus of SCBA is to
determine
 Economic benefits of the project in terms
of shadow prices
 The impact of the project on the level of
savings and investments in the society
 The impact of the project on the
distribution of income in the society;
 Social Costs of Tea
Industry
Environmental effect :
Cutting of trees
Water pollution
Air pollution from
factory
Ecological imbalance
Over Human Services
Used :
Shortage of labour
Usage of Public utility :
Consumption of Power
Global Warming
 Social Benefits of Tea
Industry
Improvement of
environment :
Tree planting
Tree plantation
Employment creation :
Direct employment
Indirect employment
Foreign Exchange
earning :
Social Welfare
Education & Health
Care
 EXAMPLE
 Ifa bridge is to be
constructed then how much
will it benefit the people who
live in that particular area, is
to be analyzed.
Therefore, how many people
are willing to use the bridge,
how much traffic will be
reduced and what is the
increase in cost of travelling
will have to be assessed as a
whole to come to a conclusion
 Contt.
Before starting a
project, cost and
benefit of alternative
projects are assessed
too.
•For example, the
opportunity cost of
setting up a hospital
instead of a school.
Social Costs of
Construction of a
Bridge on a River
Increased pollution during construction
Migration of labour from farming
Shortage of price hike of raw materials
Unemployment to people engaged in
ferries
Abolishing of small shops existed at
Ferry
boats
Loss of farms and houses of some
families
Social Benefits of
Construction of a Bridge
Employment to workers during
construction
Less cost in travel and transportation
Saving of time of people
Employment in toll tax collection
Social Welfare
Approaches to SCBA
UNIDO Approach:
This approach focuses on consumption
as the final goal of all investments and
therefore the benefit and costs relating
to a project are determined in terms of
impact on consumption.
• L-M Approach:
The L-M approach determines the
benefits and costs of projects in terms of
investment. The social costs and
benefits are measured in terms of
international prices.
 contt
Apart from above,
some financial
institutions like IDBI,
IFCI and ICICI are
following simplified
version of L-M
approach: economic
rate of return, effective
rate of protection and
domestic resource
test.etc
 UNIDO Approach
UNIDO method of project appraisal involves
five stages:
1. Calculation of the financial profitability of the
project measured at market prices.
2. Obtaining the net benefit of the project measured in
terms if economic (efficiency) prices.
3. Adjustment for the impact of the project on savings
and investment.
4. Adjustment for the impact of the project on income
and distribution.
5. Adjustment for the impact of the project on merit
goods and demerit goods whose social values differ
from their economic values
L-M Approach :
Features of L-M Approach : 
This approach measures the cost
and benefits in terms of
international or border prices.
Why do they prefer Border Prices?
 It is because that the border
prices represent the correct social
opportunity costs or benefits of
using or producing traded goods.
L-M Approach :
Social Cost Benefit Analysis (SCBA) : 
• The resources of input and output of a
project are classified into:
o
Labor
o
Traded goods
o
Non-traded goods

• Therefore, to find out the real value of

these resources, the following values are
to be calculated
o
Shadow wage rate (SWR)
o
Shadow price of traded goods
o
Shadow price of Non-traded goods
 UNIDO VS. L-M
Differences :
UNIDO L-M
Domestic currency International price
is used as is used as
Nemeraire Nemeraire
Consumption is Uncommitted
the measurement social income is
base the measurement
base
SCBA objectives At one place all
are met through SCBA objectives