Economic analysis of investment operations : analytical tools and practical applications

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Title:

Publication Information:

Washington, DC : World Bank, 2001

ISBN:

9780821348505

Subject Term:

Economic development projects -- Evaluation

Added Author:

Belli, Pedro

Available:*

Library	Item Barcode	Call Number	Material Type	Item Category 1	Status
Searching... Razak School	30000005171750	HC79.E44 E28 2001	Open Access Book	Book	Searching... Unknown

'Economic Analysis of Investment Operations' presents general principles and methodologies that are applicable across sectors, including quantitative risk analysis. It provides both theory and practice about how to evaluate transportation, health, and education projects; and explains how to assess the environmental impact of projects. It provides a fresh look at the tools of project analysis and explains how to apply quantitative analysis of costs and benefits from multiple perspectives--including the private sector, the public sector, bankers, and the country as a whole. The examples used to illustrate the principles are drawn from actual projects of the World Bank and other institutions.

Foreword	p. xi
Acknowledgments	p. xiii
Glossary	p. xv
Introduction	p. xxv
1 An Overview of Economic Analysis	p. 1
The Economic Setting	p. 2
Rationale for Public Sector Involvement	p. 2
Questions That Economic Analysis Should Answer	p. 3
2 Conceptual Framework	p. 9
Economic Opportunity Costs	p. 10
Risk Analysis	p. 12
The Process of Economic Analysis	p. 14
Transparency	p. 16
3 Consideration of Alternatives	p. 17
With and Without Comparisons	p. 17
Private Sector Counterfactual	p. 19
Separable Components	p. 21
4 Getting the Flows Right: Identifying Costs and Benefits	p. 25
Cash Flow Analysis	p. 27
Sunk Costs	p. 27
Interest Payments and Repayment of Principal	p. 28
Interest during Construction	p. 28
Physical Contingencies	p. 29
Transfer Payments	p. 29
Donations and Contributions in Kind	p. 30
The China Agricultural Support Services Project: An Example	p. 30
Externalities	p. 32
Consumer Surplus	p. 33
5 Getting Prices Right	p. 37
Numeraire and Price Level	p. 37
Economic Analysis and Inflation	p. 41
Financial Analysis and Inflation: A Digression	p. 42
Market Prices versus Economic Costs	p. 44
Valuation of Inputs and Outputs	p. 44
Tradable and Nontradable Goods	p. 45
Valuation of Tradable Goods	p. 46
Shadow Exchange Rate	p. 49
Premium on Foreign Exchange	p. 50
Other Sources of Premiums	p. 52
Valuation of Nontradable Goods and Services	p. 53
Conversion Factors	p. 56
Marginal Cost of Public Funds	p. 57
6 Valuing Environmental Externalities	p. 59
Environmental Externalities	p. 61
Project Boundaries and Time Horizon	p. 61
Valuation of Environmental Impacts	p. 62
Preventing and Mitigating Environmental Impacts	p. 70
7 Cost-Effectiveness	p. 73
Relating Costs to Benefits: Cost-Effectiveness Analysis	p. 74
Assessing Unit Costs	p. 77
Relating Costs to Benefits: Weighted Cost-Effectiveness	p. 78
Comparing Options with Subjective Outcomes	p. 80
Some Important Caveats	p. 81
8 Economic Evaluation of Education Projects	p. 83
Categories of Project Costs	p. 83
Organizing and Presenting the Cost Data	p. 85
Relating Costs to Benefits: Cost-Benefit Analysis	p. 86
Appendix 8A Computing Rates of Return to Education by Level	p. 94
9 Economic Evaluation of Health Projects	p. 99
The Steps of Economic Analysis	p. 99
An Immunization Example: A Child Immunization Program	p. 101
Value of Life	p. 117
Appendix 9A Examples of Measures of Performance	p. 118
Appendix 9B Examples of Potential Benefits from Health Projects	p. 119
10 Economic Evaluation of Transport Projects	p. 121
Conceptual Framework	p. 122
Forecasting Demand	p. 124
Normal, Generated, and Diverted Traffic	p. 124
Reduction of Vehicle Operating Costs	p. 126
Time Savings	p. 126
Accident Reduction	p. 131
Producer Surplus or Net National Income Approach	p. 132
Network Effects within a Mode	p. 137
Intermodal Effects	p. 137
Timing	p. 138
Environmental Impact	p. 140
The Highway Development Model	p. 140
Gainers and Losers	p. 141
Fiscal Impact	p. 141
11 Risk and Sensitivity Analysis	p. 143
Sensitivity Analysis	p. 143
Switching Values	p. 145
Selection of Variables and Depth of Analysis	p. 146
Presentation of Sensitivity Analysis	p. 147
Shortcomings of Sensitivity Analysis	p. 148
The Expected Net Present Value Criterion	p. 149
NPV versus Best Estimates	p. 149
Products of Variables and Interactions among Project Components	p. 151
Monte Carlo Simulation and Risk Analysis	p. 151
Assigning Probability Distributions of Project Components	p. 152
Assigning Correlations among Project Components	p. 155
A Hypothetical Example: Advantages of Estimating Expected NPV and Assessing Risk	p. 156
Risk Neutrality and Government Decisionmaking	p. 160
When the NPV Criterion Is Inadequate	p. 164
12 Gainers and Losers	p. 167
Dani's Clinic	p. 168
Republic of Mauritius: Higher and Technical Education Project	p. 171
Conclusions	p. 187
Appendix 12A Estimation of the Shadow Exchange Rate	p. 189
Appendix 12B Key Assumptions	p. 192
Employment Rates	p. 192
Incremental Income for University Graduates	p. 193
Incremental Income for PhDs	p. 193
Incremental Income for MBAs	p. 193
Appendix 1A Rationale for Public Provision	p. 199
Natural Monopolies	p. 201
Externalities	p. 202
Public Goods	p. 203
Asymmetric Information and Incomplete Markets	p. 205
Poverty Reduction	p. 209
Merit Goods	p. 209
Distribution of Costs and Benefits	p. 210
Summary	p. 212
Technical Appendix	p. 215
Discounting and Compounding Techniques	p. 215
The Mechanics of Discounting and Compounding	p. 216
Net Present Value Criterion	p. 217
Internal Rate of Return	p. 217
Comparison of Mutually Exclusive Alternatives	p. 219
Conceptual Framework	p. 222
Traded Goods	p. 227
Nontraded, but Tradable Goods	p. 229
Nontradable Goods	p. 230
The Shadow Exchange Rate	p. 231
Quantitative Restrictions	p. 235
The Opportunity Cost of Capital	p. 238
The Shadow Wage Rate	p. 244
References and Bibliography	p. 247
Index	p. 259
Boxes
2.1 Mauritius Higher and Technical Education Project	p. 13
3.1 The With and Without Case: Vietnam Highway Rehabilitation Project	p. 19
6.1 Assessing Disposal Alternatives for Geothermal Wastewater in the Philippines	p. 65
6.2 Estimating the Downstream Costs of Soil Erosion in China	p. 66
6.3 Using Dose-Response Relationships to Estimate Health Outcomes in Jakarta	p. 67
6.4 Valuing Life by Statistical Techniques	p. 68
6.5 Valuing Consumer Surplus of International Tourists in Madagascar	p. 69
7.1 Evaluating the Cost-Effectiveness of School Inputs in the Philippines	p. 76
8.1 Evaluating School Amalgamation Options in Barbados	p. 88
8.2 Cost-Benefit Analysis of School Improvement Options in Brazil	p. 89
9.1 Measuring Healthy Years of Life Gained	p. 109
10.1 Estimating the Value of Time in Brazil	p. 129
11.1 Mexico-Probabilistic Risk Analysis	p. 161
TA.1 Shadow Price of Foreign Exchange in India	p. 236
TA.2 Opportunity Cost of Capital in Indonesia, 1992	p. 243
Figures
3.1 With and Without Project Comparison	p. 18
3.2 Displacement and Addition Effects	p. 21
4.1 Measuring Consumer Surplus	p. 34
4.2 Net Benefits Profile of a Project	p. 35
6.1 Private versus Social Costs	p. 60

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