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Evaluating Projects in a Dynamic Economy: Some New Envelope Results

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Author Info
Li, Chuan-Zhong () (Department of Economics)
Löfgren, Karl-Gustaf () (Department of Economics, Umeå University)

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Abstract

This 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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Publisher Info
Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 613.

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Length: 19 pages
Date of creation: 15 Sep 2003
Date of revision: 04 Dec 2006
Handle: RePEc:hhs:umnees:0613

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Related research
Keywords: dynamic cost-bene.t analysis; net national product; project evaluation; welfare index;

Other versions of this item:

Find related papers by JEL classification:
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kenneth Arrow & Partha Dasgupta & Karl-Göran Mäler, 2003. "Evaluating Projects and Assessing Sustainable Development in Imperfect Economies," Working Papers 2003.109, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  2. Asheim, Geir B., 2000. "Green national accounting: why and how?," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 25-48, February. [Downloadable!]
    Other versions:
  3. Aronsson, Thomas & Lofgren, Karl-Gustaf, 1999. "Welfare equivalent NNP under distributional objectives," Economics Letters, Elsevier, vol. 63(2), pages 239-243, May. [Downloadable!] (restricted)
  4. Boadway, Robin W, 1975. "Cost-benefit Rules in General Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 42(3), pages 361-74, July. [Downloadable!] (restricted)
    Other versions:
  5. Weitzman, Martin L, 2001. " A Contribution to the Theory of Welfare Accounting," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(1), pages 1-23, March. [Downloadable!] (restricted)
  6. Dixit, Avinash & Hammond, Peter & Hoel, Michael, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," Review of Economic Studies, Blackwell Publishing, vol. 47(3), pages 551-56, April. [Downloadable!] (restricted)
  7. Dasgupta, Partha, 2001. "Valuing Objects and Evaluating Policies in Imperfect Economies," Economic Journal, Royal Economic Society, vol. 111(471), pages C1-29, May. [Downloadable!] (restricted)
  8. Caputo, Michael R., 1990. "How to do comparative dynamics on the back of an envelope in optimal control theory," Journal of Economic Dynamics and Control, Elsevier, vol. 14(3-4), pages 655-683, October. [Downloadable!] (restricted)
  9. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Li, Chuan-Zhong & Isacsson, Gunnar, 2009. "Valuing urban accessibility and air quality in Sweden: A regional welfare analysis," Working Paper Series 2009:2, Uppsala University, Department of Economics. [Downloadable!]
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