Cost–Benefit Analysis and Incentives in Evaluation

Cost–Benefit Analysis and Incentives in Evaluation

The Structural Funds of the European Union

Edited by Massimo Florio

This book provides an authoritative contribution to applied cost–benefit analysis (CBA) and other evaluation methods in the context of the regional policy of the European Union. Through the use of Structural Funds and other financial and regulatory mechanisms, the EU will help to promote thousands of infrastructure projects in the next decade. CBA will be a key ingredient in the investment decision process and the authors provide important insights from their international experiences in project appraisal and evaluation and point to some valuable lessons to be learnt for the future.

Chapter 14: Derivation of Regional Welfare Weights: An Application to Turkey

Haluk Sezer

Subjects: economics and finance, public sector economics, valuation, environment, transport, valuation


Haluk Sezer INTRODUCTION Social welfare weights are constructed for a variety of uses. They can be used for setting out priorities in the allocation of social funds among different long term projects with respect to different regions (Evans et al., 2005; Kula, 2002) or for making distributional adjustments with respect to gender, age, ethnicity, family status or even health states as long as differentiation among the different groups, for example male and female, is based on income (Weisbrod, 1972). The justification for assigning different weights for different income groups arises out of the underlying social welfare function which relates the concept of diminishing marginal utility to per capita income (HM Treasury, 2003). That is, the higher the level of per capita income, the lower will be the marginal utility associated with it. Therefore the welfare weights attached to low income groups will, ceteris paribus, have relatively high values. In this context, the elasticity of marginal utility with respect to income or consumption (e) plays a critical role in the construction of welfare weights (Blue and Tweeten, 1997). A significant portion of the literature concerning social welfare weights and discount rates is devoted to the estimation of e (sometimes referred to as an income ‘inequality aversion parameter’) using different approaches. Included in these approaches are studies based on survey methods (Amiel et al., 1998); studies based on life-time consumption behaviour (Blundell et al., 1994); studies using a demand for want-independent commodity model...

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