Value added and secondary benefits in regional projection evaluation: Irrigation development in the Snake River basin

Abstract

Benefit/cost methodologies are well accepted for project analysis from a national perspective. Recent pressure to develop local decisionmaking and local funding for water projects has focused attention on the regional costs and benefits of such development. This paper examines some methodological issues that emerge as one attempts to estimate these regional costs and benefits. Uncritical use of regional economics procedures and concepts such as input-output analysis and value added to measure the primary and secondary impacts of these projects carries the risk of seriously overestimating regional project benefits. The paper concludes that new approaches to regional project analysis must be developed that will reconcile and incorporate regional economics procedures with benefit/cost methodology.

Regional cooperation and economic development

“…221n using net value added, care has to be taken to deduct all transfers to other jurisdictions. For an analysis of this issue see: [4]. Shadow prices must be used if there are distortions in market prices, foreign exchange rate, market interest rates, wages or if there are substantial unemployed capital or labor resources that could be used by a project.…”

“…(4) While, in theory, all alternatives should be explored, the determination of alternatives to be explored is invariably a political process. More often than not it is the objective of an interested party to get its own alternative explored, but to see to it that someone else's alternative is not explored, if the participant feels that the exploration itself will weaken its own case.…”

Methodological issues in the evaluation of regional resource development projects

“…4While Young and Gray, Hamilton and Gardner, and Weber, et al [10,27,28] object to the use of value added as a measure of benefits, they fail to fully explore either the pitfalls or the consequences inherent in this practice. Indirect benefits are measured when welfare impacts are to be calculated in a general rather than a partial equilibrium framework.…”

“…3Additional confusion is generated when those analysts who do recognize that these concepts differ refer to indirect effects as indirect benefits [10].…”

“…Finally, Weber, et al [27], Hamilton and Gardner [10], and Young and Gray [28] are emphatically critical of studies which include indirect effects as a measure of benefits. ~ In many analyses of Canadian and U.S. water resource projects, nevertheless, indirect effects are incorrectly included as a part of project benefits in the calculation of B-C ratios [5,14,18,25,27].…”