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p. 11 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 A. General B. Identification and Quantification of Benefits C. Identification and Quantification of Costs 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 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 : VI. Identification and Quantification of Costs and Benefits

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B. Identification and Quantification of Benefits

39. For directly productive projects, the main benefits will be in the form of production that is sold. It is important to determine whether a projects output is incremental to existing supplies. If the project is small relative to the size of the market, it is likely that the project output will be fully incremental. This is the case for most outputs that are traded internationally. In the case of an output that is nontradable, project supply can cause price effects where nonincremental output displaces sales from higher-cost producers.

40. The need for services from indirectly productive projects will depend on underlying factors, such as the rate of economic growth for freight transport or the rate of population growth for water and health services. A key feature of a sector or project analysis will be the phasing of investments to match the demand for services. For most indirectly productive projects, the type and extent of expected benefits can be quantified through such factors as time and cost savings, increased access, improved health, and so on, most of which have a productive effect, as well as a direct effect on welfare.

41. Some benefits of indirectly productive projects will not be quantifiable. For example, a newly sited bridge may not only reduce travel time for haulage trucks, but may also encourage greater social and political interaction by those on both sides of the river. A dam project may create a reservoir that not only can be used for fishing or recreational purposes, but also can have a scenic value for existing inhabitants. Such benefits should be stated along with an estimate of the number of beneficiaries.

42. Project benefits also include the extent of any consumer surplus. A project may lower the price of the output for all consumers. The savings to existing consumers, because of the difference between what they are willing to pay and what they will now have to pay, is not reflected in the financial effects. Consumer surplus can also arise when the output price is fixed by government below the demand price. The difference between the actual price and what consumers are willing to pay can be estimated through a price elasticity of demand, if available. If no direct estimate of the elasticity is available or can be estimated, then the likely magnitude of this form of benefit should be discussed (see Appendix 4).

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