Issues in Estimating Benefits with Non-Market Methods
By Kenneth E. McConnell (08/95, En) See also Environment and Natural Resources
This paper concerns the estimation of benefits used in the evaluation of development projects, especially public facilities or environmental projects. The estimation of benefits uses a variety of techniques, both contingent valuation and behavioral techniques. Benefit measures presumably have an important role in the allocation of funds for development banks. The consequence of inappropriate project analysis is that lending will increase debt burdens without corresponding economic and social benefits. The paper reviews methods for evaluating projects, especially projects with multiple design options.
Traditionally, measures of benefits have been used in project analysis. But there is room for other uses of non-market valuation techniques. Interest in GNP accounts augmented with environmental effects requires tracking the value of natural resources as assets. While the focus of such studies has been on declines in productivity from degradable or exhaustible resources, non-market resources may be a more important omission from the accounts than resources which are marketed but insufficiently protected by entrepreneurs. Augmenting GNP accounts should rest on a solid base of non-market valuation. Attempts to include non-market values can reveal some of the pitfalls of green accounting.
The contribution of resource values to the debate about policy and legislation is a more compelling reason for building the intellectual basis for non-market valuation. Economic analysis can help create a culture which recognizes trade-offs when development banks engages in policy dialogues with their members. Part of this analysis entails recognizing and accounting for the value of goods and services not sold on the market. This paper reviews the estimation of benefits for project analysis, especially with regard to quality changes and multiple quality changes.
This paper was prepared under the aegis of the Office of the Chief Economist.
Last updated: 05/08/07
