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Cost-Benefit Analysis Theory versus Practice at the World Bank 1960 to 2015

Published online by Cambridge University Press:  06 March 2019

William A. Ward
William A. Ward*
Affiliation:
Clemson University College of Business, The John E. Walker Department of Economics, Sirrine Hall, Clemson, South Carolina 29634-5124, e-mail: [email protected]
*
*e-mail: [email protected]
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Abstract

Two cost-benefit analysis methods developed from differing economic situations and analytical objectives in the 1960s and 1970s. The Trade Policy Approach of Ian Little and James Mirrlees analyzed international competitiveness of projects producing private goods and physical infrastructure in markets severely distorted by trade protectionism; it was adopted in 1975 by the World Bank; the multilateral regional development banks followed suit. The Public Finance Approach of Arnold Harberger developed from comparative statics analyses of public projects and policies in the United States and was adopted at the US Agency for International Development and in several Latin American countries. The original Trade Policy Approach included social analysis too tedious for everyday application, leading an efficiency-only version to emerge and be popularized by teaching materials from Price Gittinger and colleagues in the World Bank’s Economic Development Institute. It proved the right method for World Bank use until Washington Consensus reforms, the GATT and WTO reduced price distortions, and slowly restored private international financial flows gave private industry access to international private investment capital. Official Development Assistance (ODA) portfolios responded by refocusing on public goods and market failures, leading to decreased utility of the Trade Policy Approach and decreased use of cost-benefit analysis at the World Bank. A 1990s drive in the World Bank to switch from the Trade Policy Approach to the increasingly relevant Public Finance Approach resulted in an internal manual and operational guidelines, but not a book from a distinguished university press, commonly presumed to signal official Bank policy. It is time for that long-overdue book to be published.

Keywords

H43H44O21O22D5cost-benefit analysisinternational developmentproject economics
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 10 , Issue 1 , Spring 2019 , pp. 124 - 144
Copyright
© Society for Benefit-Cost Analysis 2019 

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