Abstract
The cost concept that is used in this study regarding the resources used in a project is that of the maximum benefits foregone. Suppose that a project’s input of, say, steel reduces the quantity of steel available in the rest of the economy. Then the cost of this steel is to be measured by the value it had to its users. Suppose, however, that the project’s demand for steel results in an increase in steel production rather than a reduction in the use of steel in the rest of the community. Then the steel producer would need to withdraw resources from the rest of the economy and the cost of the additional steel production would then be represented by the value of these resources. Or, in other words, the value of the additional steel produced would, in this case, be its opportunity cost of production.
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Notes Chapter 3
Harberger, A. C., ‘Professor Arrow on the Social Discount Rate,’ in ‘ Cost-Benefit Analysis of Manpower Policies,’ eds. Somers, G. G. and Woods, W. D., Industrial Relations Centre, Queen’s University, Kingston, Ontario, 1969. Excerpted in Harberger, A. C., ‘Project Evaluation–Collected Papers,’ Markham Publishing Company, Chicago, 1974, pp. 123–131.
As Hinrichs has investigated, import duties and taxes on exports, taxes on exporting companies or government marketing board arrangements are a chief source of revenue of more than two thirds of the less developed countries. (Hinrichs, H. H.,: ‘Determinants of Permanent Revenue Shares Among Less Developed Countries,’ The Economic Journal, Sept. 1965, pp. 546–556 ).
SeeHarberger, ‘Professor Arrow on the Social Discount Rate’ in ‘Collected Papers,’ pp. 124–125. Other writers in addition to Harberger arrived at similar results, namely Schydlowsky, D. M., ‘On the Choice of a Shadow Price for Foreign Exchange,’ Harvard University Development Advisory Service, Economic Development Report No. 108, Cambridge, Massachusetts, 1968; and Bacha, E. and Taylor, L., ‘Foreign Exchange Shadow Prices: A Critical Review of Current Theories,’ The Quarterly Journal of Economics, No. 2, May 1971, pp. 197–224; reprinted in ‘Benefit-Cost Analysis 1971,’ Aldine-Atherton, Inc., Chicago, New York, 1972, pp. 29–59.
Lemis, A. W., `Economic Development with Unlimited Supplies of Labor,’ The Manchester School of Economic and Social Studies, May 1954, and ‘Unlimited Labor - Further Notes,’ The Manchester School of Economic and Social Studies, January 1958.
Myint, H. ‘The Economics of the Developing Countries,’ 4th (revised) ed., Hutchison University Library, London, 1973, p. 71.
SEN, A. K., `Choice of Techniques,’ 3rd ed., Basil Blackwell, Oxford, 1968, p. 3.
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For a more detailed discussion of the farm-household, the reader is referred to ‘Nakajima, C., ‘Subsistence and Commercial Family Farms’ in ‘Subsistence Agriculture and Economic Development,’ ed. Wharton Jr., C. R., Aldine Publishing Company Chicago, 1969, pp. 165–185.
For a refutation of empirical studies trying to prove the existence of surplus labor, see Kao, C. H., Anschel, K. R., and Eicher, C. K., ‘Disguised Unemployment in Agriculture: A Survey’ in `Agriculture in Economic Development,’ eds. Eicher, C. K., and Witt, L. W., McGraw-Hill, New York, 1964; and Jorgenson, D. W., ‘The Role of Agriculture in Economic Development: Classical versus Neoclassical Models of Growth’ in ‘Subsistence Ariculture and Economic Development,’ ed. Wharton Jr., C. R., Aldine Publishing Company, Chicago, 1969.
Hansen, B., ‘Employment and Rural Wages in Egypt: Reply,’ The American Economic Review, June 1971.
Harris, J. R. and Todaros, M. P., ‘Migration, Unemployment and Development: A Two Sector Analysis,’ The American Economic Review, March 1970.
Harberger, A. C., ‘On Measuring the Social Opportunity Cost of Labor,’ Paper presented at a meeting of experts on Fiscal Policies for Employment Promotion, sponsored by the International Labor Office at Geneva, Switzerland, January 1971. Reprinted in ‘Project Evaluation-Collected Papers,’ Markham Publishing Company, Chicago, 1974, pp. 157–183.
Stiglitz, J. E., ‘Alternative Theories of Wage Determination and Employment in LDC’s: The Labor Turnover Model,’ The Quarterly Journal of Economics, May 1974.
Mazumdar, D., ‘The Rural-Urban Wage Gap, Migration and the Shadow Wage,’ World Bank Staff Working Paper No. 197, Washington, D.C., February 1975.
Todaro, M. P., ‘A Model of Labor Migration and Urban Unemployment in Less Developed Countries,’ The American Economic Review, March 1969.
Fisk, E. K., ‘Response of non-Monetary Production Units to Contact with the Exchange Economy,’ Paper presented at the Conference on Agriculture in Development Theory at Villa Serbilloni, Bellagio, Italy, May 23–29, 1973.
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Nakajima, ‘Subsistence and Commercial Family Farms.’
For a summary of-the recent controversies in Capital Theory, see Harcourt, G. C., ‘Some Cambridge Controversies in the Theory of Capital,’ Cambridge University Press, London, New York, 1972.
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Usher, D., ‘On the Social Rate of Discount - Comment,’ The American Economic Review, December 1969, p. 925.
Harberger, A. C., ‘On Measuring the Social Opportunity Cost of Public Funds,’ in ‘The Discount Rate in Public Investment Evaluation,’ Conference Proceedings of the Committee on the Economics of Water Resources Development, Western Agricultural Economic Research Council, Report No. 17, Denver, Colorado, 17–18 December 1969. Reprinted in Harberger, A. C., `Project Evaluation - Collected Papers,’ Markham Publishing Company, Chicago, 1974, Chapter I V.
The pioneers of the approach were Douglas, P. H. and Cobb, C. W., ‘A Theory of Production,’ The American Economic Review, Vol. 18, 1928, supplement. Subsequently discussed in Douglas’s pioneering work: ‘Theory of Wages,’ The MacMillan Company, New York, 1934.
Chakravarty, S., ‘The Use of Shadow Prices in Programme Evaluation,’ in `Capital Formation and Economic Development,’ ed. Rosenstein-Rodan, P. N., George Allen and Unwin, Ltd., London, 1964, p. 60.
As done by SoLow, R. M., ‘Capital Theory and the Rate of Return,’ Professor Dr. F. de Vries Lectures, North-Holland Publishing Company, Amsterdam, 1964. Solow found a rate of return of 23 to 25 percent in the US and about 19 percent in Germany.
Samuelson, P. A., ‘Parable and Realism in Capital Theory - The Surrogate Production Function,’ The Review of Economic Studies, Vol. 39, 1962, Reprinted in ‘Capital and Growth - Selected Readings,’ eds. Harcourt, G. C. and Laing, N. F., Penguin Books, 1971.
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Harberger, A. C., ‘Investment in Men versus Investment in Machinery: The Case of India,’ in ‘Education and Economic Development,’ eds. Anderson, C. A. and Bowman, M. J., Aldine Publishing Company, Chicago, 1965. Reprinted in Harberger, A. C., ‘Project Evaluation - Collected Papers,’ Markham Publishing Company, Chicago, 1974, Chapter VI.
Lal, D., ‘Wells and Welfare–An Exploratory Cost-Benefit Study of the Economics of Small-Scale Irrigation in Maharashtra,’ Series on Cost-Benefit Analysis, Case Study No. 1, Development Centre of the Organisation for Economic Cooperation and Development, Paris, 1972, pp. 154–158.
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Helmers, F.L.C.H. (1979). The Valuation of Costs. In: Project planning and income distribution. Studies in development and planning, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-010-3722-8_3
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