An investigation of social cost-benefit analysis practice in the appraisal of public development projects in Kenya.

Abstract

Social Cost Benefit Analysis (CBA) is the most useful branch of welfare economics especially in the appraisal of public projects in developing countries. In practice it is controversial due to its basis in value judgments. This study surveyed existing practices by practitioners in the light of its methodological shortcomings. It found out that CBA has still not taken root in Kenya. To many in Kenya the discipline is still in its infancy stages, infact some do not know of such a technique while others only have a very slight idea of what it is. The study also found out that for those who undertake this exercise, the greatest difficulties they encounter have to do with valuation and shadow pricing for items that normally do not have market prices. Another finding was that, undertaking CBA is not a futile exercise; it actually increases project performance, in spite of the fact that this branch of welfare economics has been widely criticized. Those who do not undertake CBA, give reasons that are all related to its core tenets of imputing monetary values to all items for the sake of economic formulae geared towards efficiency. According to the findings of the study, one of the major limitations that make CBA less worthwhile to use is that it conceives reality as static rather than as dynamic and that only a few factors under CBA can be varied at a time. Consequently it is proposes the dynamic conception of projects and the project environment by project designers as a viable alternative. This also has implications for educators and planners in public sector projects. However the challenges of adopting this holistic perspective should not be underestimated given the heavy institutional investment in existing orthodox economic methodologies. Key words: Projects, appraisal, social cost benefit analysis, systems dynamics, and complexity.