Comment on 'The Value of Cost Benefit Analysis of Road Projects'. Quarterly Economic Commentary Special Article, April 1985

Barrett, Sean D. and Baker, T.J. and Hayes, L. and Scott, S. (1985) Comment on 'The Value of Cost Benefit Analysis of Road Projects'. Quarterly Economic Commentary Special Article, April 1985. [Working Paper]

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Abstract

In accepting the invitation by the editors of the Quarterly Economic Commentary to comment on Mr. Mansergh's paper it is hoped to show that his fears about cost benefit analysis and its use are unjustified. His paper proposes two important changes in cost benefit analysis. These are the treatment of labour costs as benefits and taxes as a resource rather than as a transfer payment. Labour is treated as a cost in cost benefit .. analysis because the supply price of labour is positve. Workers require a positive sum in exchange for their labour. Cost benefit analysis measures the benefits and costs to society as a whole from projects. The level of a project's benefits over its costs is the critical factor in evaluating the project. The division of the benefits between those accruing in tax revenues and elsewhere in the economy distributes the net benefits of the project. It neither increases nor reduces the level of net benefits from the, project. Transfer payments, such as taxes, are therefore excluded from cost benefit analysis. The proposed changes add two categories of benefit, labour costs and tax revenues, and delete one cost, labour. These changes would raise the rate of return on projects now rejected. They are thus inconsistent with the paper's recommendation that "a more rational result might be a reduction in the national enthusiasm for investment"...

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