We have seen how in conducting efficiency benefit-cost analysis we often use market prices, either directly or indirectly, to value or cost project outputs or inputs. We use market prices directly when they are generated by perfectly competitive markets - markets that are not distorted by monopoly, monopsony, taxes or regulations. | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch. 12: Valuation of Non-marketed Goods We have seen how in conducting efficiency benefit-cost analysis we often use market prices, either directly or indirectly, to value or cost project outputs or inputs. We use market prices directly when they are generated by perfectly competitive markets - markets that are not distorted by monopoly, monopsony, taxes or regulations. We use market prices indirectly when we adjust them to generate shadow-prices. In this way prices that are generated in imperfectly competitive markets can provide information that can be used in the BCA. For some project inputs or outputs there will be no market in which they are traded, and hence no market price is available for use either directly or indirectly in the BCA. Some examples of non-marketed outputs or inputs: - recreational fishing - a nice view - air or water pollution - a life saved - a disease prevented Non marketed goods and services are just as relevant to economic welfare as marketed commodities. Since changes in the quantities of non-marketed goods and services affect the level of economic welfare, they need to be valued in efficiency and referent group BCA ( but not in project or private BCA). The analyst is very likely to encounter the problem of valuing non-marketed commodities in BCA. Why? Because project outputs or inputs do not have market prices the market resource allocation may not be efficient. For this reason governments see a need to regulate the private market or undertake public expenditure in areas neglected by the market. The very fact that the government wants a BCA suggests that there may be non-marketed commodities involved. Why are some outputs or inputs that affect the level of economic welfare not marketed? The market is a vehicle for trade in commodities. For trade to occur, property rights in . | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch. 12: Valuation of Non-marketed Goods We have seen how in conducting efficiency benefit-cost analysis we often use market prices, either directly or indirectly, to value or cost project outputs or inputs. We use market prices directly when they are generated by perfectly competitive markets - markets that are not distorted by monopoly, monopsony, taxes or regulations. We use market prices indirectly when we adjust them to generate shadow-prices. In this way prices that are generated in imperfectly competitive markets can provide information that can be used in the BCA. For some project inputs or outputs there will be no market in which they are traded, and hence no market price is available for use either directly or indirectly in the BCA. Some examples of non-marketed outputs or inputs: - recreational fishing - a nice .
