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Public Investment Criteria: Financial and Economic Internal Rates of Return

dc.contributor.authorIfzal Ali
dc.date.accessioned2015-03-18T12:25:45Z
dc.date.available2015-03-18T12:25:45Z
dc.date.issued1990-04-15
dc.identifier.urihttp://hdl.handle.net/11540/3085
dc.description.abstractThe main purpose of this paper is to develop an integrated framework of analysis to examine the points of departure of economic from financial analysis of projects. This framework is sufficiently general to encompass the characteristics of various sectors of an economy. Differences in project boundary, externalities and policy distortions together provide the raison-d'etre for economic analysis. Once this is recognized, the transition from financial to economic analysis is clear cut as indicated in the following important conclusions drawn from the paper. First, only in cases where there are no externalities, project boundaries are similar between financial and economic analysis, and competitive internal markets exist can FIRR be used as a proxy for FIRR. Second, when issues of project boundary and externalities become important, public intervention is likely. Consequently, the weight of project boundary and externalities in determining the EIRR becomes critical. Low FIRRs anc high EIRRs are likely in projects with significant externalities. However, a comparison of FIRR and 'EIRR' based or. financial profitability adjusted for price distortions and differences in project boundary may. in this case, provide some clues of relating financial price to willingness to pay. Third, in cases where issues of project boundary and externalities are known to be important but quantification and valuation of all benefits and costs are not possible, the project analyst will have little option but to estimate an FIRR. and indicate qualitatively that net benefits associated with differences in project boundary and externalities are likely to be positive. Fourth, the statement that whenever an FIRR can be calculated an EIRR can also be calculated is in general not correct. Even if an 'EIRR' associated with financial profitability adjusted for policy introduced distortions can be estimated, it may be meaningless as a proxy for economic viability if issues linked to project boundary and externalities are important. Fifth, the statement that the FIRR is a lower bound estimate for EIRR has no basis when issues of economic pricing, project boundary and externalities are important. Sixth, FIRR should not be used as a proxy for assessing economic viability even when full cost recovery including capital cost has been used to establish the pricing principle for the public utility undertaking the investment project under consideration.
dc.languageEnglish
dc.publisherAsian Development Bank
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.titlePublic Investment Criteria: Financial and Economic Internal Rates of Return
dc.typeReports
dc.subject.expertRegional Development Finance
dc.subject.expertPublic Scrutiny of City Finances
dc.subject.expertNon-Bank Financial Institutions
dc.subject.expertLocal Government Finance
dc.subject.expertGovernment Financial Institutions
dc.subject.expertForeign and Domestic Financing
dc.subject.expertFinancial Risk Management
dc.subject.expertAssessing Corporate Governance
dc.subject.expertGood Governance
dc.subject.expertGovernance Approach
dc.subject.adbPublic Accounting
dc.subject.adbBusiness Financing
dc.subject.adbSubsidies
dc.subject.adbSocial Equity
dc.subject.adbEconomic Equity
dc.subject.adbProject Risks
dc.subject.adbProject Impact
dc.subject.adbPublic Administration
dc.subject.adbCorporations
dc.subject.naturalTaxing power
dc.subject.naturalTax administration and procedure
dc.subject.naturalTax policy
dc.subject.naturalEffect of taxation on labor supply
dc.subject.naturalDecentralization in government
dc.subject.naturalCommunity power
dc.subject.naturalCorporate divestment
dc.subject.naturalCivil government
dc.subject.naturalDelegation of powers
dc.subject.naturalEquality
dc.subject.naturalNeighborhood government
dc.subject.naturalSubnational governments
dc.subject.naturalDelivery of government services
dc.title.seriesEDRC Staff Paper Series
dc.title.volume50
dc.contributor.imprintAsian Development Bank
oar.themeFinance
oar.themeGovernance
oar.adminregionAsia and the Pacific Region
oar.countryBangladesh
oar.countryBhutan
oar.countryIndia
oar.countryMaldives
oar.countryNepal
oar.countrySri Lanka
oar.countryBrunei Darussalam
oar.countryCambodia
oar.countryIndonesia
oar.countryLao People's Democratic
oar.countryMalaysia
oar.countryMyanmar
oar.countryPhilippines
oar.countrySingapore
oar.countryThailand
oar.countryViet Nam
oar.countryCook Islands
oar.countryFiji Islands
oar.countryKiribati
oar.countryMarshall Islands
oar.countryFederated States of Micronesia
oar.countryNauru
oar.countryPalau
oar.countryPapua New Guinea
oar.countrySamoa
oar.countrySolomon Islands
oar.countryTimor-Leste
oar.countryTonga
oar.countryTuvalu
oar.countryVanuatu
oar.countryAfghanistan
oar.countryArmenia
oar.countryAzerbaijan
oar.countryGeorgia
oar.countryKazakhstan
oar.countryKyrgyz Republic
oar.countryPakistan
oar.countryTajikistan
oar.countryTurkmenistan
oar.countryUzbekistan
oar.countryPeople's Republic of China
oar.countryHong Kong
oar.countryChina
oar.countryRepublic of Korea
oar.countryMongolia
oar.countryTaipei,China
oar.identifierOAR-002989
oar.authorAli, Ifzal
oar.importtrue
oar.googlescholar.linkpresenttrue


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