New Frontiers in Project Evaluation? A Comment on Devarajan, Squire, and Suthiwart-Narueput

Readers might infer from the paper by Devarajan, Squire, and Suthiwart-Narueput and from Hammer's applications of that methodology to health projects, that the authors are proposing fundamental modifications of the standard techniques and of received theory of cost-benefit analysis (otherwise known as applied welfare economics and in some uses as social or economic project evaluation). Such an inference is not warranted, however. So far as I can see, nearly everything the authors propose fits quite easily within the inherited corpus of applied welfare economics. The steps that they advocate are modifications not of standard cost-benefit analysis, but of habits that have developed over the years and decades both in the World Bank and quite generally among practitioners of economic project evaluation. Hammer nicely summarizes Devarajan, Squire, and Suthiwart-Narueput's main prescription: there should be a firm rationale for public involvement if a project is to be done in the public sector; the project should be compared with a clear "counterfactual"; the fiscal impact of the project should be clearly identified and should be assigned a properly estimated cost; and the issue of fungibility of funds should be clearly addressed in weighing the economic consequences of project loans.