The costs in an economic analysis are mostly comparable to the capital costs and the O&M costs whereas the benefits are less obviously defined. The economic benefits relate more to non-monetary impacts such as safety, efficiency, welfare and so on. The key challenge for these benefits is how to value them, which is commonly approximated by the Willingness to Pay (WTP)
| Willingness to Pay A fundamental concept used in welfare economics is the willingness to pay (WTP). The amount (demand price) that an individual is willing to pay for an incremental unit of food or service measures its economic value to him/her and, hence, it's an economic benefit to the economy. Competitive markets for goods or services essentially provide data for estimating their benefits and costs. In other cases, WTP is used for measurement of benefits and costs. | |
| PROJECT | Alandur Sewerage Project While conducting the feasibility study on the project, Willingness to Pay (WTP) survey was also conducted by the consultants in order to assess the scheme's acceptability to the citizens of Alandur town. The survey covered more than 10 per cent of the population of the municipality, spread over 42 wards. On the basis of the survey results and the financial analysis of the project, the public entity (Alandur Municipality) decided to collect one-time deposits in the form of connection charges from the people. In addition, it was also decided by the municipality to collect the sewer maintenance charges at the rate of Rs150 per month per connection from the domestic users, Rs 450 per month per connection from commercial users and Rs 750 per month from industrial users. The domestic monthly charges were proposed to be increased to 6 per cent annually till they reached a level of Rs 180per month. Similarly, the commercial and industrial maintenance charges were proposed to be increased by 6 per cent annually up to the level of Rs 540 and Rs 900 respectively. These limits were later reduced on the basis of another WTP survey, and discussions with the citizens and officials concerned. Source: http://toolkit.pppinindia.com/highways/module3-rocs-asp1.php?links=asp1 |
Secondary or spill over costs and benefits that have an impact beyond the project itself (sometimes called externalities) - for example
1. Impact of the project on the broader economy
2. Valuations of non-market factors from social and environmental assessment (social and environmental externalities)
An economic multiplier is a number used to estimate economy-wide impacts of industry-specific economic changes. Multipliers are generated from numerical or statistical models of a national or regional economy. Using models, multipliers can be calculated for every business or industry sector in the economy. A multiplier is always greater than one because it is a ratio that is calculated by dividing a) the estimated total effect resulting from a given economic "shock" to the economy by b) a necessarily smaller partial effect, namely the direct project- or activity-specific effect.
Usually, some benefits and costs associated with the project do not have an observable monetary value (say, a market price). A full quantitative analysis requires the monetary value of such benefits and costs to be estimated. The adviser or analyst conducting the economic viability study has to propose and justify the valuation. This should be based on a strong and defensible methodology as the valuation of non-monetary benefits and costs can be very subjective.
| Multiplier Effect A highway, road or public transport project provides direct benefits to the users of the infrastructure or services provided, but can also provide benefits to other road users if it reduces congestion on existing roads. Another example of secondary economic impact is the spill over effect in terms of the improved efficiency resulting from improved infrastructure. Negative environmental externalities from a road project include increased local pollution along the corridor. However, this is assessed in the context of positive effects such as improved vehicle running efficiency due to the easing of congestion. |
Given below in the table are the indicative economic costs and benefits in a telecom project:
| Benefits | Time saved for each communication (waiting time, transmission time, etc.), quantifiable by appropriate measurement units according to type of service. In addition to the above, the new additional services, which would be unavailable if the project were not implemented. In some cases the time saved method can be applied for their quantification and valuation, but in most cases it is possible to estimate the willingness-to-pay for the service by the users. |
| Costs | Local environmental impact |