Social Cost Benefit

Analysis (SCBA)

Presented By:
SUSHIL KUMAR YADAV
 1. MEANING OF SOCIAL COST
 As an aid to planning, decision-making,
evaluation and control, the social cost benefit
analysis provides a scientific and quantitative
base for the appraisal of projects with a view
to determine whether the total benefits of a
project justify the total social costs.
 To make a scientific and systematic social
cost benefit analysis of a projects, it is
necessary to weigh each project’s
advantages (benefits) and disadvantages
(costs) to the society or nation as whole.
Economists consider externalities as spillover effects,
third-party effects etc. to be more precise, external
economies and diseconomies are social benefits and social
costs respectively.

According to Ahmed Belkaoui defined

“An externality arises whenever a firm’s activities have

a negative or positive impact on the environmental for
which the firm is not held accountable. If the impact is
positive, it is called an external economy or social benefit;
if the impact is negative, it is external diseconomy or
social cost.”

he further stated that “if the activities of a firm lead to

a depletion of social resources, the result is a social cost; if
they lead to increase in social resources, the result is a
social benefit.”
 2. Social costs
Various social costs include mainly the following items:
(i) Goods and Material Acquired
(ii) Labor and Services Used:
 Work-related injuries and illness
 Occupational disease
 Social losses resulting from employment of children, women and young
persons.
(iii) Fixed Assets Purchased
(iv) Environmental Damage
(v) Public Service and Facilities Used
(vi) Discrimination
(vii) Payments from Other Elements of Society
(viii) Other Costs:
•Depletion of animal resources
•Depletion of energy sources
•Costs of technological change
•Costs of unemployment and idle resources
•Monopoly costs
•Social costs of distribution
•Soil erosion and deforestation
•Social cost of transportation
•Disruption of family life
•Reduction In the life expectancy in hazardous industries
•Wastage of natural resources
•Economic disparity
•Adverse effect on social order
•Urbanization
•Undesirable practices.
3. Social Benefits
A project has many social benefits. These Benefits may be listed as follows:
(i) Products and Services Provided
(ii) Payments to the Other Elements of Society
(iii) Creation of Employment Opportunities
(iv) Additional Direct Employee Benefits
(v) Improvements in Environment
(vi) Staff, Equipment and Facility Donated
(vii)Other benefits
• Providing employment opportunities in those areas where unemployment
or under employment is prevalent.
• Creation of employment opportunities to weaker sections of the society
e.g., schedule castes, scheduled tribes etc. on a preferential basis.
• Postponing opportunities for the preservation of precious natural
resources.
(vii) Other Benefits: (contd)
•Programmes e.g. free day care Centres, special assistance to minority
organizations etc.
•Establishment of projects in those areas which are comparatively less
profitable but are significant in the interest of the nation.
•Providing good township and better social life to the employees.
•Earning foreign exchange for the national welfare.
•Marketing efforts to enhance health of the workers.
•Rise in standards of living.
•Exploitation of natural resources.
•Equality.
•Decrease in poverty
•End of class system
•Population control
•Activities related to community welfare.
•Social welfare works.
4. Rational of Social Cost Benefit Analysis

SCBA brings out a comparison between the social benefits and social costs in
order to reveal the net return on investment as a difference quantified. In such
cases, social costs are investment cost that would have available without the
project and the benefits can be defined as contribution made to the objectives of
the economic policy of the government. SCBA is a part of feasibility report
detailing and justifying assumptions made about the inputs and outputs and their
appropriate market price. There could have same factors in an investment
decision by the government in particular instance, which gives rise to a social
cost or a social benefit but this may not have a market.

For example: incase of building a highway, the effect on the environment to local
residents by causing nuisance, would be a social cost; but the traveling a motor
vehicle would be easier through highway, and will represent social benefit. In
effect, investment decisions would be based largely on economic costs and
benefits, but in the SCBA, items of social costs and benefits would be added in
financial arithmetic. These items of social costs and benefits may include the
following:
 Employment opportunities
 Social justice to the people at large
 Quality of production
 Self-reliance of small scale entrepreneurs
 Income distribution through wage rates of
workers
 Income distribution between public sector
industries without any mark up.
 5. Steps in Social Cost Benefit Analysis
 There are five broad steps to be gone through in the process of
social cost benefit analysis of a project.

1- The project must be defined in clear terms. The time-frame of the

project must be specified.

2- The 2nd step in the application of the technique is to list out all
costs and benefits of the project.

3- Similarly there are both explicit and implicit benefits to be listed.

4- The fourth step in computing the SCBA of a project is to discount

the future benefits back to the present in order to determine the
true return on cost.

5- Last steps in SCBA is to make decision in respect of inclusion or

exclusion of a project In the development programmes. Given the
resources constraint, one way out is to list the project In
descending order and implementing them one by one , beginning
with the first till the investment resources are exhausted.