Approaches to SCBA

Rationale for SCBA

The society is concern about the distribution of benefits across different group. A rupee of benefit going to an economically poor section is considered more valuable than a rupee of benefit going to an affluent section.

UNIDO approach

UNIDO approach was first articulated in the Guidelines for Project Evaluation which provides a comprehensive framework for SCBA in developing countries. UNIDO approach is based largely on the latter publication though at places we will draw on the former publication too.

Measures cost and benefits in terms of domestic rupees
Measures cost and benefits in terms of consumption.
Focuses on efficiency, savings and redistribution aspects in different stages.

UNIDO method of project appraisal involves five stages:

(i) Calculation of the financial profitability of the project measured at market prices.

(ii) Obtaining the net benefit of the project measured in terms if economic (efficiency) prices.

(iii) Adjustment for the impact of the project on savings and investment.

(iv) Adjustment for the impact of the project on income and distribution.

(v) Adjustment for the impact of the project on merit goods and demerit goods whose social values differ from their economic values.

Net benefit in terms of economic prizes

One of the important aspects of shadow pricing is the determination of the numeraire, the unit of account in which the value of inputs or outputs is expressed. To define the nummeraire, the following questions have to be answered:

What unit of currency, domestic or foreign, should be used to express benefits or costs?
Should costs and benefits be measured in current values or constant values?
Should the income of the project is measured in terms of consumption or investment?

Saving impacts and its value

Its seek to answer fallowing question

Given the income distribution project what would be its effect on saving?
What is the value of such saving?

Income distribution impact
Adjustment for merit and demerit goods

Merits good is one for which the social value exceeds the economic value.
Demerits good is one social value of goods is less than the economic value.

Little-Mirrlees approach

I.M.D Little and J.A Mirrlees have developed an approach to social cost benefit analysis which became popular as Little-mirrlees approach (L-M approach).