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.

Cost-benefit analysis and the European Union cohesion fund: on the social cost of capital and labour / M. Florio. - In: REGIONAL STUDIES. - ISSN 0034-3404. - 40:2(2006 Apr), pp. 211-224. [10.1080/00343400600600579]

Cost-benefit analysis and the European Union cohesion fund: on the social cost of capital and labour

M. Florio
Primo
2006

Abstract

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.
cost-benefit analysis; social discount rate; shadow wage; cohesion fund
Settore SECS-P/03 - Scienza delle Finanze
apr-2006
Article (author)
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/31529
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