Journal
REGIONAL STUDIES
Volume 40, Issue 2, Pages 211-224Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/00343400600600579
Keywords
cost-benefit analysis; social discount rate; shadow wage; cohesion fund
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Cost-benefit analysis is a formal regulatory requirement for the evaluation of Cohesion Fund projects. It requires the calculation of shadow prices. Observed prices in less-developed European Union regions do not reflect the social opportunity cost of labour and capital because of market failures and policy constraints. The paper discusses simple rules for the calculation of financial and economic discount rates, and of shadow wages, i.e. the opportunity costs of capital and labour, in the context of the appraisal of infrastructure projects part-financed under the Cohesion Fund. It is argued that for the 2007-13 programming period, the European Commission should adopt a unique financial discount rate of 3.5% in real terms, social discount rates of 5.5% for the Convergence regions and 3.5% for Competitiveness regions, and a region-specific shadow wage rate.
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