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Economic Analysis of Education Projects
Beyond Rate of ReturnLyn Squire
DECVP
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Beyond RATE OF RETURNTraditional question:
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Beyond RATE OF RETURNTraditional question:WHAT IS PROJECT’S VALUE
TO ECONOMY?
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Beyond RATE OF RETURNTraditional question:WHAT IS PROJECT’S VALUE
TO ECONOMY?
Current question:
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Beyond RATE OF RETURNTraditional question:WHAT IS PROJECT’S VALUE
TO ECONOMY?
Current question:SHOULD PROJECT BE IN
PUBLIC SECTOR?
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Rationale for public intervention
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Rationale for public interventionMarket failure (externalities, public
goods)
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Rationale for public interventionMarket failure (externalities, public
goods)Redistribution
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If there is a rationale...Is the project the best instrument?What about a subsidy?Regulation?
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Price
Quantity0
Market for EDUCATION
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Marginal private cost
Price
Quantity0
Market for EDUCATION
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Marginal private cost
Marginal private benefit
Price
Quantity0
Market for EDUCATION
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Market for EDUCATION
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Externalities
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Marginal social benefit
Externalities
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Marginal social benefit
Q*
Externalities
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Marginal social benefit
Q*
}Subsidy
Externalities
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q
Externalities
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Marginal private cost
Marginal private benefit
Price
Quantity0
P
Q Q*
Externalities
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Marginal private cost
Marginalprivate benefit
Price
Quantity0
P
Q Q*
Externalities
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Fiscal Impact:CNCA Morocco
Subsidy, millions of dollars
1989
1990
1991
1992
Average0 60 120
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Fiscal Impact:CNCA Morocco
Subsidy, millions of dollars
1989
1990
1991
1992
Average0 60 120
67
76
90
107
85
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Fiscal Impact:CNCA Morocco
Subsidy, millions of dollars
20% of basic
education
1989
1990
1991
1992
Average0 60 120
67
76
90
107
85
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Fiscal Impact:CNCA Morocco
Subsidy, millions of dollars
160% of preventive
health
1989
1990
1991
1992
Average0 60 120
67
76
90
107
85
20% of basic
education
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Redistribution
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RedistributionLeyte-Luzon Geothermal
Project
Net present value
($ millions)
-60
-30
0
30
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RedistributionLeyte-Luzon Geothermal
Project
Net present value
($ millions)
-60
-30
0
30 29.7
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RedistributionLeyte-Luzon Geothermal
Project80% cost recovery
Net present value
($ millions)
-60
-30
0
30 29.7
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RedistributionLeyte-Luzon Geothermal
Project80% cost recovery
Marginal cost of public funds
Net present value
($ millions)
-60
-30
0
30
1.0 1.1 1.2 1.3 1.4
29.7
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RedistributionLeyte-Luzon Geothermal
Project80% cost recovery
Marginal cost of public funds
Net present value
($ millions)
-60
-30
0
30
1.0 1.1 1.2 1.3 1.4
29.7
9.2
-11.3
-31.8
-52.3
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Operational ConclusionsAt IEPS:What is rationale for public
intervention?What is best instrument for
intervention?
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Operational Conclusions
What is the fiscal impact?Can we measure benefit?
At IEPS:What is rationale for public
intervention?What is best instrument for
intervention?At APPRAISAL
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