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Issues of price definition in CBA: situations of imperfect competition, budget constraints and relative prices divergences

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  • Emile QUINET

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    Abstract

    This text aims at coping with some issues of prices definition in the current practice of Cost Benefit Analysis (CBA) and at showing the importance of right choices in this matter. Taking as an example the case of transport infrastructure project, it takes a few points of application. First it assesses the consequences of forgetting the strategic interactions between operators involved in the new infrastructure and their consequences on the prices of transport services which should be endogenously determined by the market structure. Second it shows how it is possible to optimize programs when, for one reason or another, the current discount rate does not allow implementing all profitable schemes, in other words when a budget constraint remains. Third it explores the consequences of changing relative prices in the case of environmental goods, and extending sufficiently the time horizon in order to take into account these relative changes may lead to conclusions very different from the usual results of current CBA practice, and for instance reconcile individual CBA results with the current macro economic debate on GHG effects.

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    File URL: http://wp.demm.unimi.it/tl_files/wp/2009/DEMM-2009_022wp.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2009-22.

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    Date of creation: 02 Oct 2009
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    Handle: RePEc:mil:wpdepa:2009-22

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    Keywords: Budget constraint; investment choice; global warming;

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