- Email: [email protected]
Introductory note
World Derelopmenr.
1978.
Vol.
6, No. 2.
pp. 123-126.
Pergamon
Press. Printed in Great Britain.
Introductory Note J. D. MACARTHUR
Project Planning Centre for Developing Countries, University of Bradford
Methods for the appraisal of development projects have been the subject of much written and verbal comment and discussion during the 1970s. This interest has been shared by both dcademics, who are interested in the underlying ideas and methodologies that spring from them, and development practitioners, who, in different positions, are concerned with the effiof day-to-day problems arising in cacy decision-making for the planning of proposed investments and the commitment of resources of all kinds for specific projects. The development of methodology and integrated systems for economic, social and financial analysis has reached an advanced state, passing the point which some observers of the development scene think is attainable or desirable in practice. Consequently, the current debate turns less on the methodology of cost-benefit appraisal than on its relevance. The ‘question of relevance is one of particular importance to aid agencies, part of whose business it is to disburse funds for use in specific development projects. One such agency is the Kuwait Fund for Arab Economic Development. First established in 1961, the Fund applied its funds during the first 13 years mainly to development assistance in Arab However, although the title of the countries.’ Fund remains unchanged, it has since 1974 given development assistance to an increasing number of non-Arab countries. With the increasing volume of money available to the Fund since the oil price rises of 1973, the Fund has become one of the major sources of bilateral assistance to developing countries. By early 1977 the Fund had advanced over S 1.4 billion in more than 100 loans to some 40 countries. With this large and growing commitment to the financing of aid, the Fund’s officers increasingly faced the question of how to deal with the problem of appraising the large number of disparate proposals being submitted for financing. In common with other aid agencies, the
Fund is specially concerned with the distributional aspects of projects with which it is associated, an aspect that can raise profound problems in appraisal. Both to pursue the debate already taking place in the Fund and to ,enlarge it by bringing in outsiders with knowledge of both the theory and practice of project the Fund decided to conduct a analysis, Symposium on the subject, in which special emphasis would be put on the empolyment and income distribution aspects of project appraisal. Through collaboration with the British Ministry of Overseas Development and the Institute of Development Studies at the University of Sussex, a group of individuals with informed views were invited to prepare papers on aspects of cost-benefit analysis, and these were presented over two days at the Filnd’s headquarters in Kuwait on 5 and 6 April 1917. The meetings were attended by 40 participants. Eight papers were presented and discussed vigorously, and the frank exchange of views that was both sought and occurred allowed contributors from many different viewpoints to present their positions on both methodology in general and the appropriateness of the integrated quantitative methodologies that have been put forward. Although the distribution question featured prominently in these sessions, the symposium inevitably covered wider questions of cost-benefit analysis as a whole. This volume draws on the material presented at the Kuwait Fund Symposium. All of the papers presented at the meeting were revised for presentation here, and the collection is supplemented by a structured note on themes and topics raised during discussions, which were recorded verbatim at the time and subsequently edited with great effort and skill. In view of the background of the meeting and the different positions of those invited to submit papers, the collection and the record of discussion reflects a wide range of viewpoints. There was no deliberate search for agreement, and no final 123
124
WORLD
DEVELOPMENT
conclusions or recommendations. The first paper is by the Director-General of the Kuwait Fund, Mr. A. Y. Al-Hamad, in which he provides some background to the Symposium before going on to describe the importance given by the Fund to the distribution effect in appraising the many different kinds of projects in which this question arises. In a number of different ways, the Fund, by following a pragmatic approach, has been able to ensure that its resources do have as great a distribution impact as is possible, even where this is not directly brought about through the project itself. In the second paper, Professor Mirrlees, co-author of one of the most widely-discussed integrated methodologies, re-emphasizes the importance as he sees it of trying to identify all direct and indirect project effects, and to encompass them in a comprehensive pattern of analysis which aims to relate the implications of these effects within a single set of numerical measures for use in appraisal. Five basic rules for practical analysis are established, and the point made that many project decisions based on these rules depend little on value judgements. Objectives relating to income distribution can be expressed in weights based on a social welfare function. The paper discusses the particular implication of distributional considerations on three main areas: shadow wages, non-traded goods and non-market effects. Although it may be unrealistic sometimes to expect governments to allow distribution weighting in project analysis when this concern is not strongly reflected in other policies, there are cases where this is so. Failure to analyse and evaluate the many complex income effects that a project gives rise to (direct and indirect) can allow misguided investment selection, as also can a simple bias in favour of projects of a particular kind without their full impact being fully studied and appraised. In the following paper, Dr. Amin, an economist with the Fund, takes a contrary view, highly critical of the potential value of formal quantitative appraisal methods, especially where distributional aspects are concerned. He emphasizes particularly the dangers of incorporating in numerical measures weighting values (like time-preference discount rates and income distribution weights) which cannot be justifiably quantified at all. Numbers used for these purposes must, he feels, be subjective, and will inevitably reinforce the biases of the analyst or the decision-maker’s preconceptions of which choice of project he wishes to make. This rocedure could work in proiect appraisal to
the disadvantage of the poorest groups, the meeting of whose ‘Basic Needs’ should, he feels, be given a specially high or over-riding significance in project selection. Identified project effects should be measured separately, especially distribution effects in dualistic societies. No attempt to combine them in a single aggregated measure of net benefits can be justified. Analyst and decision-maker should deal only with disaggregated measures, which will allow equitable decisions about project choice to be made on a common-sense basis. The fourth paper is by Mrs. Stewart, who adds to her earlier comments on the Little/ Mirrlees system of project appraisal by reviewing case studies in which their method has been applied. In the section dealing with ‘immanent’ aspects of project appraisal, she recognizes that many methodological problems raised by the Little/Mirrlees system can in principle be handled by modification of the method, though often, in practice, they are not. However, a number of ‘transcendental’ questions remain which she argues shed doubt on the value of elaborate cost benefit analysis methods as admissible or valuable means of indicating or influencing project selection decisions. The two following papers attempt to illustrate the procedure and value of integrated cost-benefit procedures through case studies based on real situations. Drawing on material from a study of settlement schemes in Kenya, MacArthur outlines a situation where a direct choice has to be made between two new farming systems, in one of which a large growth effect was enjoyed by a relatively small number of farmers, while in the other a lower aggregate net output was shared by a larger group of somewhat poorer people. Various approaches to numerical income weighting are considered in relation to farmers’ incomes, to see how different assumptions about government’s position on distribution would affect the appraisal of. farm-income effects. The analysis goes on to identify and value off-farm income effects that would arise from implementing either alternative. These were substantial, and an appraisal that ignored them could have been seriously misguided. Reversing the normal efficiencyequity sequence of appraisal, this lengthy study brings in efficiency adjustments to market price values as a final stage of analysis, and a final set of aggregate appraisal measures are presented, covering a wide spectrum of possible government positions on distribution weighting. The second expositional paper is by Robert Porter (Head of the Economic Planning Staff in the Ministry of Overseas Development) and his
INTRODUCTORY colleague, Michael Walsh. The Ministry has, through their Manual of Project Appraisal,l adapted a simplified form of the Little/Mirrlees method for the appraisal of all projects submitted to them for capital aid financing. This cost-effectiveness study is of a domestic watersupply scheme in a hypothetical African country, and shows how, contrary to an oftenheard view, their method can be valuable in guiding decisions of choice where the project output is an unpriced (or in this case tokenpriced) non-traded good providing only consumption benefits. Distribution questions arise here not only in deciding which consumers should be supplied, but what policy should be followed in the pricing of this essential public utility. The view is put in these two specific papers that systematic comprehensive numerical analysis of a sophisticated kind can be an effective and valuable aid to decision-making for resource allocation in some situations. In the paper which follows, Chambers challenges this view with special reference to the needs of poverty-focused rural development. Pointing to of urban-based decision-makers the biases unacquainted with the real needs of poor rural people, the overwhelming shortage in many rural areas of management and administrative expertise, and the excessive demands for data and time that sophisticated appraisal methods imply, he pleads for the use of one of a range of simplified measures which he suggests could be far more appropriate for use in decentralized decision-making for small rural projects. Some of his proposed measures attempt to identify the main beneficiaries of each project. The last paper drawn from the Symposium is a short piece by Dr. Sad& an economic adviser to the Fund. Drawing on his experience of project appraisal measures in use, he spells out some of the main limitations in using discounted measures alone as a basis for project appraisal. Referring particularly to the problems of subjectivity, inconsistency between appraisals, uncertainty, and the definition of an appropriate discount rate, he shows how limited these measures can be, while he shares Dr. Amin’s doubts about the possibility of using income distribution weights to reflect the equity problem. The eight papers are followed by an extract prepared by Dr. Amin of points recorded in the discussion sessions at the Symposium. This piece, which contains a number of verbatim extracts, has been structured to group points under specific thematic heads. The summary includes the views of quite a number of people
NOTE
125
working in different areas of aid administration and project selection, making a valuable addition to the usual more academic discussion of project appraisal. Furthermore, this account allows readers to see how authors went beyond the contents of their papers in explaining their positions, and in replying to points made in the discussion. Some readers will find this item particularly interesting. The final section of Dr Amm’s summary contains comments by Richard Jolly on points of common ground and points of difference that were revealed by the discussion and in the Symposium as a whole. The areas of disagreement are the most important. One of these (the second listed) concerned the extent to which . actual applications of cost-benefit analysis . . . wouiti have much effect on the actual’ results of the calculation’. Jolly goes on to point out that this issue could be empirically determined, but the very few case studies available do not allow the point to be tested.3 This is very significant fact. Without more information on both project appraisal calculations and - more importantly - their role in investment decision-making, the debate is sure to be inconclusive about the extent to which use of the methodologies would, beyond the obvious cases, indicate and lead to the selection of a set of projects other than those which are in practice accepted for implementation. Those interested in the debate must therefore encourage all agencies concerned with project selection to make available many more case studies and other information relevant to this issue. Here, one must applaud the research currently being undertaken in the World Bank to test some of these points, and hope that the results of their work will be published fully and soon. Other donor agencies should be encouraged to follow the lead of the World Bank, including possibly the Ministry of Overseas Development and the Kuwait Fund. Further helpful discussion of many of the subjects raised at the Symposium must surely depend on the availability of factual information on how project decisions are made, and of the actual or potential role in guiding project choice of any of the various approaches or indicators referred to in this collection, both the simplest and the most comprehensive. To know whether any of these proposals are useful tools rather than interesting ideas to be the subject of endless debate, we need to know more about how decision-makers of different kinds actually make their choices, or, more importantly, what kinds of analysis and presentation they would like to have available, and when.
126
WORLD
DEVELOPMENT
In suggesting this, it is recognized that project decision-making situations and positions vary substantially, and an individual’s assessment of the desirability or possible usefulness of any appraisal approach may depend on the kind of decision situation that the particular commentator has in mind. Although the sceptical attitudes expressed by some of the Kuwait Fund Staff reflect only individual views, and many other participants from the Fund expressed the view that project appraisal could and actually did play a significant role in their daytoday screening operations as well as in the decision-making process of aid allocation, one can see why ‘practitioners’of an aid agency could have greater reason for scepticism than ‘academics’. In an aid agency, the nature of the agency’s objectives and operations means that only a few projects come up for that agency from any particular countryP These could very likely be in different economic sectors and so differ substantially from each other. The prospect of attempting to derive a full set of shadow pricing parameters anew for each project is indeed daunting, and open to all kinds of difficulty. One must view with awesome admiration those agencies -- ODM and IBRD included - who attempt to do this in situations where economists in the country concerned do not already have the necessary parameters worked out, though the fact that these agencies continue to deal with projects in this way (albeit crudely) must indicate that it is in their view both possible and worth the effort. Those concerned with designing comprehensive systems of shadow pricing and encouraging their adoption generally have in mind the needs and practice of a national planning office which expects to apply values once derived to all projects in that country qualifying for their use. In such situations a single national agency (often hypothetically called COPE - the Central Office of Project Evaluation) would specialize in this work. COPE members would estimate, refine and up-date national and regional parameter estimates, and use them regularly in a consistent way. Under such a structure, the oft-repeated objections to the complex problems in parameter estimation of data and manpower shortage would be reduced, arbitrariness removed, and the difficulty of subjective value judgements reduced through the application of the parameters concerned (discount rate, income distribution weights, etc.) in a regular way so that the same ‘biases’ apply to all relevant project appraisals. Furthermore, this aspect of economic and social policy could be applied in a completely open and complementary way with all other instruments of
economic and social management so that conflict or inconsistency between different branches of policy could be reduced and/or visibly acknowledged. This particular difference in underlying viewpoint may be one of the reasons why such marked difference of view was apparent in the papers and at the meetings between those with confidence in shadow pricing methods and those others who were very sceptical. The viewpoint of proponents of the methods will need more than mere case studies to show whether their ideas are workable and valuable in a national context. Resolution of the point must inevitably wait some years, since very few countries have decided to obtain, use and keep updated comprehensive sets of shadow prices and national parameters. However. requests for experts in this area indicate that an increasing number of countries are becoming interested in this kind of approach, and the same is also true of some of the major regional development banks. Probably all of those interested in improving the effectiveness of development through the better design and choice of development investments will welcome these experimental attempts by a few countries. We must all hope that their experiences will be comprehensive and progressively written up, so that the debate that was successfully continued at Kuwait in April 1977 can proceed on the basis of more facts and hard evidence, and less on rhetoric and abstraction than inevitably now has to be the case. NOTES 1. The work of the Fund and the role of its projects in Arab countries is the subject of a full-length book by Stephens. 2. Published when what is now the Ministry called the Overseas Development Administration.
was
3. Even such case studies as have been published are not necessarily representative. The fly-leaf of the book (Little and Scott) containing many of the cases reviewed by Mrs. Stewart points out that all were written by Oxbridge economists. Such a pedigree, however admirable, scarcely suggests modality. 4. The Fund has an average its assisted countries.
of 2.5 projects
in each of
REFERENCES Little, M. D. and Scott, M. FG., Using Shadow Prices (London: Heinemann. 1976). Overseas Development Administration, A Guide to Appraisal in Developing Countries Project (London: HMSO, 1972). Stephens, R., The Arabs’ New Frontier (London:
Temple Smith, 1976).
1978.
Vol.
6, No. 2.
pp. 123-126.
Pergamon
Press. Printed in Great Britain.
Introductory Note J. D. MACARTHUR
Project Planning Centre for Developing Countries, University of Bradford
Methods for the appraisal of development projects have been the subject of much written and verbal comment and discussion during the 1970s. This interest has been shared by both dcademics, who are interested in the underlying ideas and methodologies that spring from them, and development practitioners, who, in different positions, are concerned with the effiof day-to-day problems arising in cacy decision-making for the planning of proposed investments and the commitment of resources of all kinds for specific projects. The development of methodology and integrated systems for economic, social and financial analysis has reached an advanced state, passing the point which some observers of the development scene think is attainable or desirable in practice. Consequently, the current debate turns less on the methodology of cost-benefit appraisal than on its relevance. The ‘question of relevance is one of particular importance to aid agencies, part of whose business it is to disburse funds for use in specific development projects. One such agency is the Kuwait Fund for Arab Economic Development. First established in 1961, the Fund applied its funds during the first 13 years mainly to development assistance in Arab However, although the title of the countries.’ Fund remains unchanged, it has since 1974 given development assistance to an increasing number of non-Arab countries. With the increasing volume of money available to the Fund since the oil price rises of 1973, the Fund has become one of the major sources of bilateral assistance to developing countries. By early 1977 the Fund had advanced over S 1.4 billion in more than 100 loans to some 40 countries. With this large and growing commitment to the financing of aid, the Fund’s officers increasingly faced the question of how to deal with the problem of appraising the large number of disparate proposals being submitted for financing. In common with other aid agencies, the
Fund is specially concerned with the distributional aspects of projects with which it is associated, an aspect that can raise profound problems in appraisal. Both to pursue the debate already taking place in the Fund and to ,enlarge it by bringing in outsiders with knowledge of both the theory and practice of project the Fund decided to conduct a analysis, Symposium on the subject, in which special emphasis would be put on the empolyment and income distribution aspects of project appraisal. Through collaboration with the British Ministry of Overseas Development and the Institute of Development Studies at the University of Sussex, a group of individuals with informed views were invited to prepare papers on aspects of cost-benefit analysis, and these were presented over two days at the Filnd’s headquarters in Kuwait on 5 and 6 April 1917. The meetings were attended by 40 participants. Eight papers were presented and discussed vigorously, and the frank exchange of views that was both sought and occurred allowed contributors from many different viewpoints to present their positions on both methodology in general and the appropriateness of the integrated quantitative methodologies that have been put forward. Although the distribution question featured prominently in these sessions, the symposium inevitably covered wider questions of cost-benefit analysis as a whole. This volume draws on the material presented at the Kuwait Fund Symposium. All of the papers presented at the meeting were revised for presentation here, and the collection is supplemented by a structured note on themes and topics raised during discussions, which were recorded verbatim at the time and subsequently edited with great effort and skill. In view of the background of the meeting and the different positions of those invited to submit papers, the collection and the record of discussion reflects a wide range of viewpoints. There was no deliberate search for agreement, and no final 123
124
WORLD
DEVELOPMENT
conclusions or recommendations. The first paper is by the Director-General of the Kuwait Fund, Mr. A. Y. Al-Hamad, in which he provides some background to the Symposium before going on to describe the importance given by the Fund to the distribution effect in appraising the many different kinds of projects in which this question arises. In a number of different ways, the Fund, by following a pragmatic approach, has been able to ensure that its resources do have as great a distribution impact as is possible, even where this is not directly brought about through the project itself. In the second paper, Professor Mirrlees, co-author of one of the most widely-discussed integrated methodologies, re-emphasizes the importance as he sees it of trying to identify all direct and indirect project effects, and to encompass them in a comprehensive pattern of analysis which aims to relate the implications of these effects within a single set of numerical measures for use in appraisal. Five basic rules for practical analysis are established, and the point made that many project decisions based on these rules depend little on value judgements. Objectives relating to income distribution can be expressed in weights based on a social welfare function. The paper discusses the particular implication of distributional considerations on three main areas: shadow wages, non-traded goods and non-market effects. Although it may be unrealistic sometimes to expect governments to allow distribution weighting in project analysis when this concern is not strongly reflected in other policies, there are cases where this is so. Failure to analyse and evaluate the many complex income effects that a project gives rise to (direct and indirect) can allow misguided investment selection, as also can a simple bias in favour of projects of a particular kind without their full impact being fully studied and appraised. In the following paper, Dr. Amin, an economist with the Fund, takes a contrary view, highly critical of the potential value of formal quantitative appraisal methods, especially where distributional aspects are concerned. He emphasizes particularly the dangers of incorporating in numerical measures weighting values (like time-preference discount rates and income distribution weights) which cannot be justifiably quantified at all. Numbers used for these purposes must, he feels, be subjective, and will inevitably reinforce the biases of the analyst or the decision-maker’s preconceptions of which choice of project he wishes to make. This rocedure could work in proiect appraisal to
the disadvantage of the poorest groups, the meeting of whose ‘Basic Needs’ should, he feels, be given a specially high or over-riding significance in project selection. Identified project effects should be measured separately, especially distribution effects in dualistic societies. No attempt to combine them in a single aggregated measure of net benefits can be justified. Analyst and decision-maker should deal only with disaggregated measures, which will allow equitable decisions about project choice to be made on a common-sense basis. The fourth paper is by Mrs. Stewart, who adds to her earlier comments on the Little/ Mirrlees system of project appraisal by reviewing case studies in which their method has been applied. In the section dealing with ‘immanent’ aspects of project appraisal, she recognizes that many methodological problems raised by the Little/Mirrlees system can in principle be handled by modification of the method, though often, in practice, they are not. However, a number of ‘transcendental’ questions remain which she argues shed doubt on the value of elaborate cost benefit analysis methods as admissible or valuable means of indicating or influencing project selection decisions. The two following papers attempt to illustrate the procedure and value of integrated cost-benefit procedures through case studies based on real situations. Drawing on material from a study of settlement schemes in Kenya, MacArthur outlines a situation where a direct choice has to be made between two new farming systems, in one of which a large growth effect was enjoyed by a relatively small number of farmers, while in the other a lower aggregate net output was shared by a larger group of somewhat poorer people. Various approaches to numerical income weighting are considered in relation to farmers’ incomes, to see how different assumptions about government’s position on distribution would affect the appraisal of. farm-income effects. The analysis goes on to identify and value off-farm income effects that would arise from implementing either alternative. These were substantial, and an appraisal that ignored them could have been seriously misguided. Reversing the normal efficiencyequity sequence of appraisal, this lengthy study brings in efficiency adjustments to market price values as a final stage of analysis, and a final set of aggregate appraisal measures are presented, covering a wide spectrum of possible government positions on distribution weighting. The second expositional paper is by Robert Porter (Head of the Economic Planning Staff in the Ministry of Overseas Development) and his
INTRODUCTORY colleague, Michael Walsh. The Ministry has, through their Manual of Project Appraisal,l adapted a simplified form of the Little/Mirrlees method for the appraisal of all projects submitted to them for capital aid financing. This cost-effectiveness study is of a domestic watersupply scheme in a hypothetical African country, and shows how, contrary to an oftenheard view, their method can be valuable in guiding decisions of choice where the project output is an unpriced (or in this case tokenpriced) non-traded good providing only consumption benefits. Distribution questions arise here not only in deciding which consumers should be supplied, but what policy should be followed in the pricing of this essential public utility. The view is put in these two specific papers that systematic comprehensive numerical analysis of a sophisticated kind can be an effective and valuable aid to decision-making for resource allocation in some situations. In the paper which follows, Chambers challenges this view with special reference to the needs of poverty-focused rural development. Pointing to of urban-based decision-makers the biases unacquainted with the real needs of poor rural people, the overwhelming shortage in many rural areas of management and administrative expertise, and the excessive demands for data and time that sophisticated appraisal methods imply, he pleads for the use of one of a range of simplified measures which he suggests could be far more appropriate for use in decentralized decision-making for small rural projects. Some of his proposed measures attempt to identify the main beneficiaries of each project. The last paper drawn from the Symposium is a short piece by Dr. Sad& an economic adviser to the Fund. Drawing on his experience of project appraisal measures in use, he spells out some of the main limitations in using discounted measures alone as a basis for project appraisal. Referring particularly to the problems of subjectivity, inconsistency between appraisals, uncertainty, and the definition of an appropriate discount rate, he shows how limited these measures can be, while he shares Dr. Amin’s doubts about the possibility of using income distribution weights to reflect the equity problem. The eight papers are followed by an extract prepared by Dr. Amin of points recorded in the discussion sessions at the Symposium. This piece, which contains a number of verbatim extracts, has been structured to group points under specific thematic heads. The summary includes the views of quite a number of people
NOTE
125
working in different areas of aid administration and project selection, making a valuable addition to the usual more academic discussion of project appraisal. Furthermore, this account allows readers to see how authors went beyond the contents of their papers in explaining their positions, and in replying to points made in the discussion. Some readers will find this item particularly interesting. The final section of Dr Amm’s summary contains comments by Richard Jolly on points of common ground and points of difference that were revealed by the discussion and in the Symposium as a whole. The areas of disagreement are the most important. One of these (the second listed) concerned the extent to which . actual applications of cost-benefit analysis . . . wouiti have much effect on the actual’ results of the calculation’. Jolly goes on to point out that this issue could be empirically determined, but the very few case studies available do not allow the point to be tested.3 This is very significant fact. Without more information on both project appraisal calculations and - more importantly - their role in investment decision-making, the debate is sure to be inconclusive about the extent to which use of the methodologies would, beyond the obvious cases, indicate and lead to the selection of a set of projects other than those which are in practice accepted for implementation. Those interested in the debate must therefore encourage all agencies concerned with project selection to make available many more case studies and other information relevant to this issue. Here, one must applaud the research currently being undertaken in the World Bank to test some of these points, and hope that the results of their work will be published fully and soon. Other donor agencies should be encouraged to follow the lead of the World Bank, including possibly the Ministry of Overseas Development and the Kuwait Fund. Further helpful discussion of many of the subjects raised at the Symposium must surely depend on the availability of factual information on how project decisions are made, and of the actual or potential role in guiding project choice of any of the various approaches or indicators referred to in this collection, both the simplest and the most comprehensive. To know whether any of these proposals are useful tools rather than interesting ideas to be the subject of endless debate, we need to know more about how decision-makers of different kinds actually make their choices, or, more importantly, what kinds of analysis and presentation they would like to have available, and when.
126
WORLD
DEVELOPMENT
In suggesting this, it is recognized that project decision-making situations and positions vary substantially, and an individual’s assessment of the desirability or possible usefulness of any appraisal approach may depend on the kind of decision situation that the particular commentator has in mind. Although the sceptical attitudes expressed by some of the Kuwait Fund Staff reflect only individual views, and many other participants from the Fund expressed the view that project appraisal could and actually did play a significant role in their daytoday screening operations as well as in the decision-making process of aid allocation, one can see why ‘practitioners’of an aid agency could have greater reason for scepticism than ‘academics’. In an aid agency, the nature of the agency’s objectives and operations means that only a few projects come up for that agency from any particular countryP These could very likely be in different economic sectors and so differ substantially from each other. The prospect of attempting to derive a full set of shadow pricing parameters anew for each project is indeed daunting, and open to all kinds of difficulty. One must view with awesome admiration those agencies -- ODM and IBRD included - who attempt to do this in situations where economists in the country concerned do not already have the necessary parameters worked out, though the fact that these agencies continue to deal with projects in this way (albeit crudely) must indicate that it is in their view both possible and worth the effort. Those concerned with designing comprehensive systems of shadow pricing and encouraging their adoption generally have in mind the needs and practice of a national planning office which expects to apply values once derived to all projects in that country qualifying for their use. In such situations a single national agency (often hypothetically called COPE - the Central Office of Project Evaluation) would specialize in this work. COPE members would estimate, refine and up-date national and regional parameter estimates, and use them regularly in a consistent way. Under such a structure, the oft-repeated objections to the complex problems in parameter estimation of data and manpower shortage would be reduced, arbitrariness removed, and the difficulty of subjective value judgements reduced through the application of the parameters concerned (discount rate, income distribution weights, etc.) in a regular way so that the same ‘biases’ apply to all relevant project appraisals. Furthermore, this aspect of economic and social policy could be applied in a completely open and complementary way with all other instruments of
economic and social management so that conflict or inconsistency between different branches of policy could be reduced and/or visibly acknowledged. This particular difference in underlying viewpoint may be one of the reasons why such marked difference of view was apparent in the papers and at the meetings between those with confidence in shadow pricing methods and those others who were very sceptical. The viewpoint of proponents of the methods will need more than mere case studies to show whether their ideas are workable and valuable in a national context. Resolution of the point must inevitably wait some years, since very few countries have decided to obtain, use and keep updated comprehensive sets of shadow prices and national parameters. However. requests for experts in this area indicate that an increasing number of countries are becoming interested in this kind of approach, and the same is also true of some of the major regional development banks. Probably all of those interested in improving the effectiveness of development through the better design and choice of development investments will welcome these experimental attempts by a few countries. We must all hope that their experiences will be comprehensive and progressively written up, so that the debate that was successfully continued at Kuwait in April 1977 can proceed on the basis of more facts and hard evidence, and less on rhetoric and abstraction than inevitably now has to be the case. NOTES 1. The work of the Fund and the role of its projects in Arab countries is the subject of a full-length book by Stephens. 2. Published when what is now the Ministry called the Overseas Development Administration.
was
3. Even such case studies as have been published are not necessarily representative. The fly-leaf of the book (Little and Scott) containing many of the cases reviewed by Mrs. Stewart points out that all were written by Oxbridge economists. Such a pedigree, however admirable, scarcely suggests modality. 4. The Fund has an average its assisted countries.
of 2.5 projects
in each of
REFERENCES Little, M. D. and Scott, M. FG., Using Shadow Prices (London: Heinemann. 1976). Overseas Development Administration, A Guide to Appraisal in Developing Countries Project (London: HMSO, 1972). Stephens, R., The Arabs’ New Frontier (London:
Temple Smith, 1976).