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Forecasting, uncertainty, and public project appraisal

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Author Info
Anderson, J.R.

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Abstract

Uncertainty in project planning and appraisal is still topical in the World Bank and other lending and development agencies although it is certainly not a new issue. It is appropriate to reconsider the issue now because more than a decade of active research on risk analysis has transpired without, however, the seeming emergence of agreed procedures and practice. In particular, the implications for what information price forecasters should provide for risky project appraisers have yet to be clarified. In Section 2, theoretical arguments about the proper role of uncertainty in appraisal are reviewed, and this section is closed by discussion of the various'practical'methods that have been proposed, in and outside the World Bank. Further procedures for quantifying uncertainty in both forecasting and appraisal are considered in Section 3. Section 4 presents a set of procedures that seem workable and retain some theoretical defensibility. These are illustrated through an example. Finally, conclusions and implications are drawn out in Section 5.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 154.

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Date of creation: 28 Feb 1989
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Handle: RePEc:wbk:wbrwps:154

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Related research
Keywords: Economic Theory&Research; Environmental Economics&Policies; Health Economics&Finance; Statistical&Mathematical Sciences; Insurance&Risk Mitigation;

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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. Arrow, Kenneth J & Lind, Robert C, 1972. "Uncertainty and the Evaluation of Public Investment Decisions: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 171-72, March. [Downloadable!] (restricted)
  2. Mayshar, Joram, 1979. "Should Government Subsidize Risky Private Projects? Reply," American Economic Review, American Economic Association, vol. 69(3), pages 462-64, June. [Downloadable!] (restricted)
  3. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-58, March. [Downloadable!] (restricted)
  4. Anderson, Jock R., 1974. "Simulation: Methodology and Application in Agricultural Economics," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 42(01), March. [Downloadable!]
  5. Hess, James, 1982. "Risk and the gain from information," Journal of Economic Theory, Elsevier, vol. 27(1), pages 231-238, June. [Downloadable!] (restricted)
  6. McKean, Roland N & Moore, John H, 1972. "Uncertainty and the Evaluation of Public Investment Decisions: Comment," American Economic Review, American Economic Association, vol. 62(1), pages 165-67, March. [Downloadable!] (restricted)
  7. Bradford, David F & Kelejian, Harry H, 1977. "The Value of Information for Crop Forecasting in a Market System: Some Theoretical Issues," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 519-31, October. [Downloadable!] (restricted)
  8. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier. [Downloadable!] (restricted)
  9. John McMillan & Michael Rothschild & Robert Wilson, 1997. "Introduction," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(3), pages 425-430, 09. [Downloadable!] (restricted)
  10. Nichols, Alan, 1972. "Uncertainty and the Evaluation of Public Investment Decisions: Comment," American Economic Review, American Economic Association, vol. 62(1), pages 168-69, March. [Downloadable!] (restricted)
  11. Dillon, John L. & Perry, C., 1977. "Multiattribute Utility Theory, Multiple Objectives And Uncertainty In Ex Ante Project Evaluation," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 45, June. [Downloadable!]
  12. Wellington, Donald, 1972. "Uncertainty and the Evaluation of Public Investment Decisions: Comment," American Economic Review, American Economic Association, vol. 62(1), pages 170, March.
  13. Bonini, Charles P, 1975. "Risk evaluation of investment projects," Omega, Elsevier, vol. 3(6), pages 735-750, December. [Downloadable!] (restricted)
  14. Pauly, Mark V, 1970. "Risk and the Social Rate of Discount," American Economic Review, American Economic Association, vol. 60(1), pages 195-98, March. [Downloadable!] (restricted)
  15. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
  16. Quiggin, John & Horowitz, John, 1995. "Time and Risk," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 37-55, January.
  17. Stewart, Marion B, 1979. "Should Government Subsidize Risky Private Projects? Comment," American Economic Review, American Economic Association, vol. 69(3), pages 459-61, June. [Downloadable!] (restricted)
  18. Mishan, E J, 1972. "Uncertainty and the Evaluation of Public Investment Decisions: Comment," American Economic Review, American Economic Association, vol. 62(1), pages 161-64, March.
  19. Gardner, Roy, 1979. "The Arrow-Lind Theorem in a Continuum Economy," American Economic Review, American Economic Association, vol. 69(3), pages 420-22, June. [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. Klein, Michael, 1996. "Risk, taxpayers, and the role of government in project finance," Policy Research Working Paper Series 1688, The World Bank. [Downloadable!]
  2. Dixit, Avinash & Williamson, Amy, 1989. "Risk - adjusted rates of return for project appraisal," Policy Research Working Paper Series 290, The World Bank. [Downloadable!]
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