Issues of price definition in CBA: situations of imperfect competition, budget constraints and relative prices divergences

Emile Quinet ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: This text aims at coping with some issues of prices definition in the current practice of Cost Benefit Analysis (CBA) and at showing the importance of right choices in this matter. Taking as an example the case of transport infrastructure project, it takes a few points of application. First it assesses the consequences of forgetting the strategic interactions between operators involved in the new infrastructure and their consequences on the prices of transport services which should be endogenously determined by the market structure. Second it shows how it is possible to optimize programs when, for one reason or another, the current discount rate does not allow implementing all profitable schemes, in other words when a budget constraint remains. Third it explores the consequences of changing relative prices in the case of environmental goods, and extending sufficiently the time horizon in order to take into account these relative changes may lead to conclusions very different from the usual results of current CBA practice, and for instance reconcile individual CBA results with the current macro economic debate on GHG effects.

Keywords: Budget constraint; investment choice; global warming (search for similar items in EconPapers)
JEL-codes: D62 H43 H54 R42 (search for similar items in EconPapers)
Date: 2009-10-02
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