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Issues of price definition in CBA: situations of imperfect competition, budget constraints and relative prices divergences

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  • Emile QUINET

Abstract

This text aims at coping with some issues of prices 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 project, it takes a few points of application. First it assesses the consequences of forgetting the strategic interactions between operators involved in the new infrastructure and their consequences on the prices of transport services which should be endogenously determined by the market structure. Second it shows how it is possible to optimize programs when, for one reason or another, the current discount rate does not allow implementing all profitable schemes, in other words when a budget constraint remains. Third it explores the consequences of changing relative prices in the case of environmental goods, and extending sufficiently the time horizon in order to take into account these relative changes may lead to conclusions very different from the usual results of current CBA practice, and for instance reconcile individual CBA results with the current macro economic debate on GHG effects.

Suggested Citation

  • Emile QUINET, 2009. "Issues of price definition in CBA: situations of imperfect competition, budget constraints and relative prices divergences," Departmental Working Papers 2009-22, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2009-22
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    File URL: http://wp.demm.unimi.it/files/wp/2009/DEMM-2009_022wp.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Budget constraint; investment choice; global warming;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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