Indirect Distributional Effects in Benefit-Cost Analysis of Small Projects

David Wildasin

Economic Journal, 1988, vol. 98, issue 392, 801-07

Abstract: Small public projects perturb the equilibrium prices of many commodities, generating small real income changes ("pecuniary externalities") for many households. The analy sis of this paper shows that even extremely small price changes (on t he order of 1016) can have distributional effects that are far from n egligible (e.g., 10 percent of project outlays). It is shown that, at least in some simple cases, the benefit-cost analyst can accommodate these effects without measuring the actual price changes if certain key empirical parameters (such as demand and supply elasticities) are known. Copyright 1988 by Royal Economic Society.

Date: 1988
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