Issues of Price Definition in CBA: Imperfect Competition and Relative Prices Divergences

Abstract

This text aims at coping with some issues of price 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 projects, it addresses two subjects of utmost relevance in the case of transition countries marked by a growing extent of liberalization and conflicts between environmental issues and growth requirements. First, it assesses the consequences of forgetting the strategic interactions between operators involved in the new infrastructure and their impacts on the prices of transport services; it is shown that the consequences on CBA results are rather limited but consequences on traffic volumes are not negligible and are one of the sources of the current traffic overestimations in transport project. Second, it explores the consequences of changes in relative prices, with an application to long run effects implied by the global warming; it appears that properly taking into account these relative changes may lead to conclusions very different from the usual results of current CBA practice where they are generally ignored.