Project Social Assessment: Measuring Economic Impact
Project Social Assessment
Social assessment of projects measures the real contribution of projects to a country’s economic growth. Decision-makers must consider this information to program investments for maximum impact on national output. However, social assessment cannot measure all project costs and benefits; the final decision also depends on economic, political, and social factors.
Some projects with high social returns may generate unmeasurable benefits, such as beauty, and should be carried out. Others with negative social returns may generate intangible social costs and should not be undertaken. Projects with positive social returns but intangible costs, or negative returns but intangible social benefits, require social assessment for informed decision-making.
Example: If an irrigation project in a poor border area has social costs exceeding benefits by $x per year, the manager might compare this to the benefit of raising income levels and reducing border conflict risk. The financial net cost might be $y, useful for the finance ministry or central bank but not the decision to undertake the project.
Social assessment is also useful for projects requiring subsidies due to negative private profitability.
Furthermore, social assessment helps design economic policies to encourage or discourage private investment. If the social price of currency exceeds the central bank’s price for exporters, policies should encourage exports and discourage import substitution. If the social price of labor is less than the market wage, industries using more labor should be encouraged, and machinery imports discouraged.
Social vs. Private Evaluation
Both social and private evaluations use similar criteria to study project feasibility but differ in assessing costs and benefits.
- Private evaluation uses market prices.
- Social evaluation uses shadow prices or social prices to measure a project’s effect on the community, including indirect effects or externalities like income redistribution or reduced environmental impact.
Private assessment includes taxes and subsidies, which are resource transfers within the community and can be discarded in social assessment.
Social Price Adjustments
Private prices can be corrected to social prices using project-specific approaches or correction factors defined by countries. Social projects require adjusting private equity to social values, considering direct, indirect, and intangible assets and externalities.
Direct Benefits and Costs
- Direct benefits are measured by the increase in national income from product sales, using social prices adjusted for market distortions.
- Direct costs are for input purchases, with prices corrected for market distortions.
Indirect Social Costs and Benefits
These are changes in production and consumption of related goods and services due to the project, such as effects on input production or demand for products, considering market distortions.
Intangible Benefits and Social Costs
These cannot be quantified monetarily but should be considered qualitatively, such as historic site conservation or population distribution effects.
Externalities
Externalities are positive and negative effects beyond the investing institution, such as environmental pollution or income redistribution.
Conclusion
Project evaluation addresses resource allocation, recommending specific initiatives over alternatives. This implies social responsibility, impacting the entire social conglomerate. Appropriate patterns and technical standards must demonstrate optimal resource allocation.