Caremust be taken while carrying out CBA, the things which are not directlycomparable, those must be added. For example, Aggregation over goods- Tocompare costs which are in one form and the benefits which are in another form.As in this case the costs are in the form of concrete and the benefits are inthe form of electricity generated. Similarly, aggregation over time,aggregation over people etc.
are also to be taken care of. Anotherdimension which is to be mentioned in CBA is willingness to pay (WTP) andwillingness to accept (WTA). Traditionally, only WTP was focused upon, but inpresent scenario WTA has also to be taken care of, which means how many peopleare willing to accept the change occurred by a particular project. There are some variants of the approach andthey are applied depending upon the conditions of the policy/program to beevaluated. These variants are:-· Costeffectiveness analysis Costeffectiveness analysis is appropriate when a fixed amount of investment fundshave been allocated to an agency or project and the best way of using the totalbudget allocation is to be determined.
· Costminimization analysisCostminimization analysis is appropriate in funding the least cost way ofundertaking a particular project (such as different ways of producing a givenoutput of electricity or catering for a given volume of airport traffic), wherethe same benefits are assumed to result in each case. Agreat evaluator/ planner Nathaniel Lichfield analyzed planned developmentpractice in UK and later the technique was named as Social Cost BenefitAnalysis (SCBA) because in every public project there was social worth of theprojects, particularly those projects which involved the commitment ofresources. Forevaluation projects, there is a need to form some sort of rules which make theproject desirable or undesirable. These rules are: Pareto criteria- if at least one person is benefitted while hurting no one, then the project satisfies Pareto criteria, but this situation is difficult to attain as the project virtually affect some or other adversely. Social welfare criteria- If the benefits coming out of a project are multiplied by individual’s marginal social significance and the sum comes out to be positive then the project is considered desirable. Potential compensation criteria- According to this a project is desirable if the sum of the rupee value of net benefits to the gainers and losers is positive.
Or in other words it can be said that whether the net gainers are compensating the losers so as to make them well off.Theserules can be best understood with the help of an illustration given below:Table 2.2 : Project evaluation criteria Person SMUY Net benefits SMUY x Net benefits 1 0.8 +250 +200 2 1.2 -200 -240 Total +50 -40 Note: SMUY – social marginal utility ofincome (weight attached to each individual in the society)Source: Kavi K.
S. (Dissemination paper onCost Benefit Analysis and Environment) TraditionallyCBA focused on efficiency issues and desirable projects were identified on thebasis of Potential compensation criteria only, whereas equity anddistributional aspects were ignored and hence the technique attractedcriticism. In the field of environment, the criticism gained more momentum asseparation of efficiency and equity was very difficult. So, to improve themethod, it was suggested to use some variant of social welfare criteria toassess the desirability of projects. This simply means that the analyst has toidentify appropriate equity weights that will be applicable for the project.Now the debate arises about the weighing problem. Many authors argue thatalthough equity weighing could make a significant difference to CBA analysis-the range of values these weights could take makes its usage impractical.
Now,let us see its development in different countries as the time progressed. InIndia, word evaluation is related to benefit cost analysis to a layman and themethod is used by practitioners with some modifications and improvements.Similarly American countries are also still using the same technique for planevaluation. Although from time to time amendments were added, but in literatureno signs of further developments as per the nomenclature of technique arethere. But in United kingdom, the technique was criticized by NathanielLichfield due to difficulty in measurement and discounting period for publicprojects.
The other main issue was that it is very difficult to assess eachproject’s benefits and costs in monetary units. So, to assess the impacts ofvarious public projects, he developed a technique named as Planning BalanceSheet Analysis taking Cost benefit analysis as a base of his technique.