Catalog

	Table of Contents
p. 27 of 74 BACK | NEXT I. Introduction II. Background III. The Economic Rationale of A Project IV. Macroeconomic and Sectoral Context V. An Integrated Approach To Economic Analysis VI. Identification and Quantification of Costs and Benefits VII. Valuation of Economic Costs and Benefits VIII. Large Projects, Linkages, and National Affordability IX. Least-Cost and Cost-Effective Analysis X. Investment Criteria: Economic Viability A. Project Decisions B. Choosing Between Alternatives When Benefits Are Not Valued C. Choosing Between Alternatives When Benefits Are Valued D. Testing The Economic Viability of The Best Alternative E. The Chosen Discount Rate F. Project Investments and The Budget XI. Discount Rate XII. Uncertainty: Sensitivity and Risk Analysis XIII. Sustainability of Project Effects XIV. Distribution of Project Effects XV. Projects and Policies XVI. Appendices XVII. Others

Guidelines for the Economic Analysis of Projects : X. Investment Criteria: Economic Viability

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B. Choosing Between Alternatives When Benefits Are Not Valued

128. Where the benefits of a project cannot be valued, they cannot be aggregated with the costs of the project. In these circumstances, a decision can be made only about which option has the lowest present value of costs for providing a given level of output. If the full costs of each alternative are laid out over the full life of the project, including any residual value at the end of the project life, then for each alternative the present value of costs can be calculated using the chosen discount rate between 10 and 12 percent. The best alternative is the option with the lowest present value of economic costs.

Criterion: Choose option with lowest present value of economic costs at chosen discount rate (between 10 and 12 percent)

129. The choice between cost alternatives can also be approached another way. The discount rate that equalizes the costs of different options compared in pairsthe equalizing discount ratecan be calculated. Comparison of the equalizing discount rate with the Bank's discount rate for decision-making purposes will identify the least-cost option between successive pairs of options.

130. Where the cost alternatives do not provide exactly the same level of output, or where different cost alternatives have multiple and differing outcomes, it is difficult to identify the option with lowest present value of costs without placing weights on the outcomes from the different alternatives. In these cases, the approach has to be adjusted to consider both the target level of attainment of different outcomes that is desired, and the extra costs of the different alternatives of achieving higher levels for the outcomes.

Back A. Project Decisions	Next C. Choosing Between Alternatives When Benefits Are Valued