Evaluating Projects in a Dynamic Economy: Some New Envelope Results
AbstractThis paper is concerned with the modern theory of social cost-bene.t analysis in a dynamic economy. The theory emphasizes the role of a comprehensive, forward- looking, dynamic welfare index within the period of the project rather than that of a project.s long-term consequences. However, what constitutes such a welfare index remains controversial in the recent literature. In this paper, we attempt to shed light on the issue by deriving three equivalent cost-bene.t rules for evaluating a small project. In particular, we show that the direct change in net national product (NNP) quali.es as a convenient welfare index without involving any other induced side e¤ects. The project evaluation criterion thus becomes the present discounted value of the direct changes in NNP over the project period. We also illustrate the application of this theory in a few stylized examples.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 613.
Length: 19 pages
Date of creation: 15 Sep 2003
Date of revision: 04 Dec 2006
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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
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Web page: http://www.econ.umu.se/
More information through EDIRC
dynamic cost-bene.t analysis; net national product; project evaluation; welfare index;
Other versions of this item:
- Chuan-Zhong Li & Karl-Gustaf Löfgren, 2008. "Evaluating Projects in a Dynamic Economy: Some New Envelope Results," German Economic Review, Verein für Socialpolitik, vol. 9, pages 1-16, 02.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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