Social Cost Benefit Analysis Advantages And Disadvantages

SOCIAL COST BENEFIT ANALYSIS
Submitted to: Professor Manoj Anand
Submitted By: Garima Astha (PGP30075)

INTRODUCTION
Any investment in a project is undertaken only after doing a rigorous cost-benefit analysis. The focus has generally been on the financial aspects. But increasingly the focus is shifting towards the social aspects. Social Cost Benefit Analysis (SCBA) or Economic Analysis (EA) is a project appraisal tool for comparing alternatives to evaluate whether a proposed project will add benefit or cost to the society. For example, while constructing a new factory, an in depth analysis of financial and social costs (like pollution, displacement of residents, etc.) should also be considered. SCBA helps by attaching a price to all the effects

Goods/services are tradable when there are no trade barriers or when they are traded within these barriers.
• Sources of Shadow Pricing-Depending on the impact of the project on national economy, there are three sources of shadow pricing as described in the table

Impact on National Economy Sources of Shadow Pricing
From production of output angle From consumption on input angle
Increase total consumption in the economy Decrease consumption in the rest of the economy Consumer’s willingness to pay
Decrease production in other parts of the economy Increase production within the economy Cost of Production
Decrease imports or increase exports Increase imports or decrease exports Foreign Exchange Value (Border Price)‏

• Taxes- Taxes should be excluded if the project augments domestic production and for fully traded goods. If project uses non-tradable inputs, taxes should be included.
• Consumer Willingness to Pay (CWP)-What a consumer wants to spend for a product or service. The difference between CWP and actual payment is called consumer surplus.

APPROACHES TO

4. Two million man days of unskilled labor for which the project committee decided to pay a daily wage of Tk. 100. (Additional Information: The shadow price of unskilled labor is 80 Tk. Per day)‏
5. 5. Skilled labor costing Tk. 5 crore. ( However, this cost reflects what others are willing to pay for the skilled labor)‏
6. Operating & Maintenance cost of the project will be Tk. 7.5 crore annually (However, the operating cost should be Tk. 6.5 crore from social view point)‏
7. 0.5 million acres of land will be irrigated. The Government will charge the water levy at Tk. 150 for per acre. (Additional Information: The value of additional output per acre due to the irrigation will be Tk. 500 per acre).
8. 100 million units of electricity will be generated for domestic use. The electricity tariff will be charged at Tk. 1 per unit. (Additional Information: The consumers are willing to pay Tk. 1.5 for per unit of electricity).
9. Flood damages can be saved by Tk. 2 crore annually. However, the Government will not able to collect anything for this.
10. The project appoints 1,000 laborers at a wage rate of Tk. 150 per day. These workers were ready to work for a daily wage of Tk.