Economic evaluation of projects: A critical comparison of a new world bank methodology with the UNIDO and the revised OECD approach

Abstract

The discussion on the evaluation of development projects which seemed more or less to have come to an end at the beginning of the 1970s, has experienced an unexpected revival. Following the publication of the revised version of the OECD Manual by Little and Mirrlees, a new methodology for project evaluation has been developed by the World Bank. The reason behind this is the growing need for differentiated but, at the same time standardized project evaluation methods which include distribution effects involving the poorest 3/5th of the population which have hardly been touched by 20 years of development policy and development assistance. The study focuses on this new World Bank approach by Bruce, van der Tak and Squire, the revised OECD approach by Little and Mirrlees, and the UNIDO guidelines by Dasgupta, Marglin and Sen. The three theoretical concepts are compared and their different methods approaches are then illustrated on the basis of a case study, a dam project in Nepal. Finally, the three approaches are subjected to a critical appraisal in the light of the demands of project evaluation in practice. The three approaches put different emphasis on the social value of consumption, of public and private investment, and distribution effects, and formulate correspondingly different formal evaluation criteria. As the case study shows, the evaluation results are similar. However, a number of crucial problems are not explicitly considered. The main reason for this is the denial of the multidimensionality of each evaluation problem by reducing it to the one-dimensional criterion of economic efficiency, which is defined differently in the three approaches. This has further technical implications as to the lack of clarity regarding the impact of value judgments on different stages of the calculation process on the final outcome. On the other hand, the tool of project evaluation is overburdened with policy decisions which must be taken at higher levels of political decision-making, such as basic decisions on priority sectors, export promotion versus import substitution, or private versus public investment and consumption.