A cost-benefit analyst summarized the efficiency net benefits from a farming pro

Question

A cost-benefit analyst summarized the efficiency net benefits from a farming project at 10% discount. The analyst is informed that the investor, the Federal Government and the foreign bank are not part of the Referent Group.

Investor, $1million (mn) net benefits; Federal government, $4mn net benefits; State government, $2mn net costs; To otherwise local unemployed labour, $3mn net benefits; To local banks, $1mn net benefits; To foreign banks, $2mn net benefits; To the community at large, $5mn net costs from non-market values.

Calculate the referent group and non-referent group net benefits based on this information provided above.

Explanation / Answer

Efficiency net benefit = referent group net benefit + non-referent group net benefit

Reference group net benefit at market prices, A

= Net benefit to state governemnt + net benefir to local unemployed labor + net benefit to local banks + net benefit to community at large

= (-2 + 3 + 1 + 0)

= $ 2 millions

Reference group net benefit at non - market prices, B

= Net benefit to the community

= - $ 5 millions

Non reference group net benefit at market prices, C

=  Net benefit to investor + net benefir to federal + net benefit to foreign bank

= (1 + 4 + 2)

= $ 7 millions

Non reference group net benefit at non market prices, D

= 0

Therefore,

reference group net benefit = A + B = - $ 3 millions

Non reference group net benefit = C + D = $ 7 millions

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