© Harry Campbell & Richard Brown
School of Economics
The University of Queensland
BENEFIT-COST ANALYSIS
BENEFIT-COST ANALYSIS
Financial and Economic
Financial and Economic
Appraisal using Spreadsheets
Appraisal using Spreadsheets
Ch. 6: Referent Group Benefit-Cost Analysis
Referent Group Net Benefits
What is the “referent group”?
- it is the group whose net benefits are relevant to the
decision-maker who commissioned the SBCA.
What will the referent group normally consist of?
- all residents of a region, state or country
- all members of a social group, for example, pensioners,
native peoples etc.
If only referent group benefits are relevant, why bother to calculate
efficiency net benefit?
• Efficiency net benefit is the aggregate net benefit for the
project as a whole, using opportunity cost as efficiency prices.
• This relationship provides a check on the consistency of the
BCA as a whole.
• The sum of referent group and non-referent group net benefits
must equal the efficiency net benefit.
Recall Figure 1.3:
C
(=referent group
net benefits not
captured by
market prices)
B
(= non-referent group
net benefits)
A
(= referent
group net
benefits)
D
= non-ref. group non-market
net benefits
(we add segment D)
Why do we need BCA to identify referent group net benefits?
• A project evaluation will only capture benefits and costs
which are fully measured by market prices. It fails to capture
various public interest aspects of a project. For example:
- employment benefits
- indirect tax revenue changes
- pollution costs etc.