- it is the group whose net benefits are relevant to the decision-maker who commissioned the SBCA. - all members of a social group, for example, pensioners, native peoples etc. | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch. 6: Referent Group Benefit-Cost Analysis Referent Group Net Benefits What is the “referent group”? - it is the group whose net benefits are relevant to the decision-maker who commissioned the SBCA. What will the referent group normally consist of? - all residents of a region, state or country - all members of a social group, for example, pensioners, native peoples etc. If only referent group benefits are relevant, why bother to calculate efficiency net benefit? Efficiency net benefit is the aggregate net benefit for the project as a whole, using opportunity cost as efficiency prices. This relationship provides a check on the consistency of the BCA as a whole. The sum of referent group and non-referent group net benefits must equal the efficiency net benefit. Recall Figure : C (=referent group net benefits not captured by market prices) B (= non-referent group net benefits) A (= referent group net benefits) D = non-ref. group non-market net benefits (we add segment D) Why do we need BCA to identify referent group net benefits? A project evaluation will only capture benefits and costs which are fully measured by market prices. It fails to capture various public interest aspects of a project. For example: - employment benefits - indirect tax revenue changes - pollution costs etc. Four-way Classification of Net Benefits Net benefits accruing to: Referent Non-referent Group Group Captured A B by market prices Not captured by C D market prices Figure : Classification of Net Benefits Graphical Representation of Classification In specific cases some of the cells in the four-way classification can be empty. For example, in figure cell D was empty (and was omitted from the diagram) because there were no non-referent group net benefits that were not captured by the market. Such net benefits might have . | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch. 6: Referent Group Benefit-Cost Analysis Referent Group Net Benefits What is the “referent group”? - it is the group whose net benefits are relevant to the decision-maker who commissioned the SBCA. What will the referent group normally consist of? - all residents of a region, state or country - all members of a social group, for example, pensioners, native peoples etc. If only referent group benefits are relevant, why bother to calculate efficiency net benefit? Efficiency net benefit is the aggregate net benefit for the project as a whole, using opportunity cost as efficiency prices. This relationship provides a check on the consistency of the BCA as a whole. The sum of referent group and non-referent group net benefits must equal the efficiency net benefit. Recall Figure : C (=referent group net benefits not captured
