On the Treatment of Foreigners and Foreign-Owned Firms in Cost–Benefit Analysis

Per-Olov Johansson and Ginés de Rus

No 2015-13, Working Papers from FEDEA

Abstract: How to evaluate the benefits and costs of foreign consumers, foreign producers, and local firms owned by foreigners, seems to cause confusion among cost–benefit practitioners. The screening of the literature and an informal search of the most influential cost–benefit guidelines found no evidence that this issue has been addressed previously, consisting the standard approach in overlooking the benefits of foreigners, with some minor qualifications. Sometimes the practitioner gives standing to non-nationals, though the implicit reason of their inclusion is the practical difficulties of disentangling the surpluses of nationals and foreigners. Usually, there is not an explicit discussion of the question. This paper addresses the issue on standing in cost–benefit analysis. The distinction between the indirect utility function of national and non-national allows the consideration of some relevant cases for the economic evaluation of projects. These are the polar case of zero weights to foreign consumers and foreign companies shipping their producer surpluses abroad, the case of local firms owned by foreigners, the altruist local household case, the consequence of fixed factors for the evaluation of foreign surpluses and the case of transnational projects with asymmetrical distribution of costs and benefits.

Date: 2015-12
New Economics Papers: this item is included in nep-ppm
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