Welfare Foundations of Project Appraisal
In Chapters 1 and 2, we distinguished between project evaluation and project assessment, with the former concept referring to the entire project evaluation and choice process whereas the latter is limited to the measurement of a project’s net economic value. Here we focus on project assessment (or project appraisal) and examine the key concepts and principles to be applied in this type of analysis. Technically, project assessment is carried out by using Cost-Benefit Analysis (COBA). This chapter, therefore, also examines the theoretical foundations of COBA, which are based on the principles of welfare economics. Given that the key assumption underlying COBA is that a project should be accepted only if it generates positive net welfare gains, we discuss how this type of analysis accounts for various welfare conditions.