Flexibility and Consistency in Project Evaluation

Abstract

; This article focuses on a report entitled "Guidelines for Project Evaluation," prepared by P. Dasgupta, A. Sen and S. Marglin. The impact of large investment projects on the distribution of real income has attracted much attention. One form of response to this concern has been an attempt to incorporate distributional effects into a cost-benefit calculation by weighting gains and losses according to the income of the recipient. Such a procedure effectively transforms money estimates of compensating variations into units. Thus a cost-benefit criterion that is not met in money terms might well be met when the calculation is translated into utility terms, and vice versa. It cannot too often be stressed that the traditional cost-benefit analysis, based wholly on an economic criterion, is no more than one useful technique in the service of social decisions. Indeed, the acceptance of this traditional, and more rigorous and limited, concept of cost-benefit analysis clearly imply that the outcome of a cost-benefit analysis is not by itself socially decisive.