Considers the use of shadow or efficiency prices in the appraisal of public sector projects. Examines the rationale for the use of world prices to value inputs as well as outputs, discusses how to evaluate projects by using the world price numeraire and how governments make decisions when market and shadow prices give different signals. Choice of an appropriate social rate of discount and about different methods of discounting in public sector investment appraisal. Environmental dimensions of project appraisal and relevant economic theory. Examines the question of giving welfare weights to the income accruing to various groups (the theory of diminishing marginal utility of consumption), and discusses risk and uncertainty within the framework of public sector project appraisal.
