Economic Evaluation of Projects

Abstract

This chapter summarizes the economic principles that would help evaluate individual investment projects, general expenditure programs, government policies, and the regulation of economic activities. The objective of the project and program evaluation is to measure the net benefit of a project or program to those individuals in the society who are affected by such public initiatives. The chapter begins with theoretical perspectives on cost-benefit analysis and then proceeds to discuss the difficulties of implementing such an analysis and provides guidance on practical ways of dealing with those problems. The chapter recognizes project evaluation as “an art, though one with scientific underpinnings.” The chapter concludes with a plea for incorporating new insights into project evaluation from recent advances in economic theory and development economics, such as imperfect information, implications of unfettered markets, and the underground economy.