Course Description

This course deals covers the economic aspects of cost-benefit analysis, and examines how an economic analysis fits into a complete cost-benefit analysis. The emphasis will be on the use of economic theory to measure the benefits and costs of projects. Applications to infrastructure investments such as roads, electricity and water will be discussed as well as investments in the social sectors such as education and health. In addition the course will cover the theory and measurement of the economic opportunity cost of public funds, the economic cost of foreign exchange and the measurement of the economic opportunity cost of labour.  Both the theoretical as well as the applied aspects of the field will be covered.

Requirements

The course will require the completion of five problem sets plus a final exam.

Grading

20% of your grade will be based on your performance in the completion of the problem sets, and 80% will be determined by your performance on the final exam.

Final Exam NEW

The final exam will be held on June 15 at 9:00 - 12:00 pm. The exam place is Economics Conference Room, i.e. DUN 213.

Schedule

The class will meet 9:00 am to 12 noon, Mondays and Tuesdays from May 2 to June 7. There will normally be a tutorial from 10 to 12 noon on Thursdays. Office hours Mondays 2 to 5 pm.

Course Materials

All of the course materials are available on the net.

Class

Date

Lecture Notes

Subject

1

May 2
(Monday)

Role of economic Analysis in Cost-Benefit Analysis

·         Jenkins, G., et.al, “Chapter 1: The Integrated Analysis,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Jenkins, G., et.al, “Chapter 2: Project Development and Approval Cycle,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Jenkins, et.al, “Chapter 8: Principles Underlying the Economic Analysis of Projects,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Jenkins, G.P., Barreix, A. and Marchesini, M., “Restructuring the Water and Sewerage Utility in Panama”, Queen’s University, 2001.

·         Spreadsheet of “Restructuring the Water and Sewerage Utility in Panama”

Supplementary Reading

·         Harberger, A., “Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay,” Journal of Economic Literature, vol. 9, issue 3, September 1971, 785-797.

2

May 3
(Tuesday)

Alternative Investment Criteria, Optimal Timing, Scale and Length of Life of Project

·         Jenkins, et.al, “Chapter 5: Project Evaluation Criteria,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Jenkins, et.al, “Chapter 6: Consideration in Project Evaluation of Timing, Scale, and Length of Project Life,” Integrated Investment Appraisal: Concepts and Practice, 2004.

3

May 9
(Monday)

Integration of Movements in Prices, Inflation, Exchange Rates, and Impacts of Inflation

·         Jenkins, G., et.al, “Chapter 4: The Financial Analysis of a Project,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Harberger, A.C., “Chapter 2: Survey of Literature on Cost-Benefit Analysis for Industrial Project Evaluation,” Project Evaluation: Collected Papers, University of Chicago Press, 1976, pp. 42-48.

4

May 10
(Tuesday)

Measurement of Economic Prices and Conversion Factors for Non-Tradable Goods and Services

·         Jenkins, et.al, “Appendix F: Economic Prices and Conversion Factors for Non-Tradable Goods and Services,” Integrated Investment Appraisal: Concepts and Practice, 2004.

5

May 16
(Monday)

Measurement of Economic Prices and Conversion Factors for Tradable Goods and Services, and Measurement of Economic Prices of Rationed Goods and Services: Potable water and waste water project

·         Jenkins, et.al, “Appendix E: Economic Prices and Conversion Factors for Tradable Goods and Services,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Teaching Note: “Estimation of Economic Prices for Traded Goods and Services,” Queen’s University, Canada, 2002.

·         Jenkins, G.P., Barreix, A. and Marchesini, M., “Restructuring the Water and Sewerage Utility in Panama”, Queen’s University, 2001, pp- 21-30.

·         Jenkins, G.P., Korman, V. and Ghimire, P., “The Manila South Water Distribution Project: A Precursor to Privatization”, Queen’s University, 2003, pp. 14-25.

6

May 17
(Tuesday)

Evaluation of Stakeholder Impacts and Basic Needs Externalities

·         Jenkins, et.al, “Chapter 10: Evaluation of Stakeholder Impact,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Jenkins, G.P., Barreix, A. and Marchesini, M., “Restructuring the Water and Sewerage Utility in Panama”, Queen’s University, 2001, pp- 33-40.

·         Jenkins, et.al, “Chapter 12: Basic Needs Externalities,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Harberger, A.C., “Basic Needs Versus Distributional Weights in Social Cost-Benefit Analysis,” Economic Development and Cultural Change 32, no.3 (April 1984): 455-74.

7

May 23
(Monday)

Evaluation of Transportation Projects

·         Harberger, A.C., “Chapter 23: Cost-Benefit Analysis of Transportation Projects,” in Cost-Benefit Analysis (ed.) by Harberger, A.C. and Jenkins, G.P., Edward Elgar Publisher, 2002.

8

May 24
(Tuesday)

Evaluation of Electricity Projects

·         Harberger, A.C., “Chapter 9: Marginal Cost Pricing and Social Investment Criteria for Electricity Undertakings,” Project Evaluation: Collected Papers, University of Chicago Press, 1976.

9

May 30
(Monday)

Evaluation of Health and Education Projects

·         Jenkins, et.al, “Chapter 13: Cost Effectiveness Analysis,” Integrated Investment Appraisal: Concepts and Practice, 2004.

·         Pedro Belli, et.al, “Chapter 9: Economic Evaluation of Health Projects,” Economic Analysis of Investment Operations: Analytical Tools and Practical Applications, WBI Development Studies, World Bank Institute, World Bank, 2001.

·         Pedro Belli, et.al, “Chapter 8: Economic Evaluation of Education Projects,” Economic Analysis of Investment Operations: Analytical Tools and Practical Applications, WBI Development Studies, World Bank Institute, World Bank, 2001.

·         Belli, P., Khan, Q. and Psacharopoulos, G., “Assessing a Higher Education Project: A Mauritius Feasibility Study,” Applied Economics, 31, 27-35, also published in Cost-Benefit Analysis (ed.) by Harberger, A.C. and Jenkins, G.P., Edward Elgar Publisher, 2002.

10

May 31
(Tuesday)

The Economic Opportunity Cost of Labour

·         Harberger and Jenkins, “Chapter 13: Economic Opportunity Cost of Labor”, Cost-Benefit Analysis for Investment Decisions, Queen’s University, Canada, 2002.

Supplementary Reading

·         Bicak, H., Jenkins, G.P., Kuo, C. Y., and Mphahlele, M.P., “An operational guide to the Estimation of The Economic Opportunity Cost of Labour in South Africa,” The South African Journal of Economics, Vol. 72:5, December 2004.

11

June 6
(Monday)

The Economic Opportunity Cost of Capital.

·         Harberger and Jenkins, “Chapter 12: The Economic Opportunity Cost of Public Funds,” Cost-Benefit Analysis for Investment Decisions, Queen’s University, Canada, 2002.

·         Jenkins, et.al, “Appendix C: Economic Aspects of Foreign Financing,” Integrated Investment Appraisal: Concepts and Practice, 2004.

Supplementary Reading

·         Kuo, C. Y., Jenkins, G.P. and Mphahlele, M.P., “The Economic Opportunity Cost of Capital for South Africa,” The South African Journal of Economics, Vol. 71:3, September 2003, pp. 496-516.

12

June 7
(Tuesday)

Shadow Price of Foreign Exchange and the Shadow Price of Non-Tradable Outlays

·         Harberger, A.C., Kuo, C. Y., Jenkins, G.P. and Mphahlele, M.P., “The Economic Cost of Foreign Exchange for South Africa,” The South African Journal of Economics, Vol. 71:2, June 2003, pp. 298-324.

·         Harberger, A.C., “Notes on the Premia for Foreign Exchange and Nontradables Outlays,” University of California, Los Angeles, 2002.