Multi-government cost-benefit analysis: shadow prices and incentives
Europe needs a huge investment effort for (broadly defined) infrastructure in the next decade. A combination of EU grants, loans by the EIB and the EBRD, and their leverage effect on private capital is going to mobilise a huge amount of savings. Planners should establish priorities and criteria. Microeconomic social accounting, i. e. cost-benefit analysis, despite its limitations, is needed as a support to investment planning and evaluation. The key message of modern CBA theory is that shadow prices are not proxies of perfect markets outcome, but are planning signals that solve a (policy–constrained) social planner’s problem. Planners must compute shadow prices, evaluators should use them for project appraisal, and the two functions should not be confused. In principle this distinction applies at each planning level, but a consensus decision-set should emerge from this process, using a bottom-up approach. In a multi-government setting there are, however, information asymmetries that need to be addressed, and we have to turn to incentive theory. The paper proposes to move away from the current low-powered incentive EU co-financing mechanism, essentially an investment cost part-reimbursement scheme, towards a more incentive-based system. Financial and economic analysis, ex ante and ex post, should be linked to an economic performance bonus for more socially deserving projects. Examples are given of such mechanisms. Planners, managers and evaluators should be given appropriate incentives to use CBA as a cooperative learning game
|Date of creation:||22 Nov 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Via Conservatorio 7, I-20122 Milan - Italy|
Phone: +39 02 50321522
Fax: +39 02 50321505
Web page: http://www.demm.unimi.it
More information through EDIRC
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.:
- Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
- Massimo Florio, 2005. "A ``European Consensus'' on the Growth Agenda? A Discussion of the Sapir Report," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 12(3), pages 411-431, December.
When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:2006-37. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEMM Working Papers)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.