Is Economic Analysis of Projects Still Useful?

Abstract

Are the tools for economic analysis of projects - developed nearly a quarter century ago - still relevant? Yes, but they need to answer new questions. The author argues for a shift in the focus of economic analysis of projects.

First, project analysts need to make full use of project information, especially identifying the source of the divergence between market prices and economic costs as well as the source of the divergence between economic and private flows, and the group that pays the cost or enjoys the benefits. This information identifies gainers, and losers, likely project supporters and detractors, and fiscal impact. Second, project analysts need to look at the project from the perspective of the main stakeholders, principally the implementing agency, the government, and the country. Third, they should also assess whether all of the main actors have the economic and financial incentives to implement the project as designed. Fourth, they should take advantage of advances in technology and attempt to identify and measure any external effects of projects, as well as the benefits of education and health projects. Finally, they should take advantage of the advances in personal computing to provide a more systematic assessment of risk.

This paper - a product of the Operations Policy Department - is part of a larger effort in the department to improve economic analysis of projects.