1. Economic Analysis of Education Projects Beyond Rate of Return Lyn Squire DECVP

2. Beyond RATE OF RETURN ä Traditional question:

3. Beyond RATE OF RETURN ä Traditional question: WHAT IS PROJECT’S VALUE TO ECONOMY?

4. Beyond RATE OF RETURN ä Traditional question: WHAT IS PROJECT’S VALUE TO ECONOMY? ä Current question:

5. Beyond RATE OF RETURN ä Traditional question: WHAT IS PROJECT’S VALUE TO ECONOMY? ä Current question: SHOULD PROJECT BE IN PUBLIC SECTOR?

6. Rationale for public intervention

7. ä Market failure (externalities, public goods)

8. Rationale for public intervention ä Market failure (externalities, public goods) ä Redistribution

9. If there is a rationale... ä Is the project the best instrument? ä What about a subsidy? ä Regulation?

10. Price Quantity 0 Market for EDUCATION

11. Marginal private cost Price Quantity 0 Market for EDUCATION

12. Marginal private cost Marginal private benefit Price Quantity 0 Market for EDUCATION

13. Marginal private cost Marginal private benefit Price Quantity 0 P Q Market for EDUCATION

14. Marginal private cost Marginal private benefit Price Quantity 0 P Q Externalities

15. Marginal private cost Marginal private benefit Price Quantity 0 P Q Marginal social benefit Externalities

16. Marginal private cost Marginal private benefit Price Quantity 0 P Q Marginal social benefit Q* Externalities

17. Marginal private cost Marginal private benefit Price Quantity 0 P Q Marginal social benefit Q* } Subsidy Externalities

18. Marginal private cost Marginal private benefit Price Quantity 0 P Q Externalities

19. Marginal private cost Marginal private benefit Price Quantity 0 P QQ*Q* Externalities

20. Marginal private cost Marginal private benefit Price Quantity 0 P QQ*Q* Externalities

21. Fiscal Impact: CNCA Morocco Subsidy, millions of dollars 1989 1990 1991 1992 Average 060120

22. Fiscal Impact: CNCA Morocco Subsidy, millions of dollars 1989 1990 1991 1992 Average 060120 67 76 90 107 85

23. Fiscal Impact: CNCA Morocco Subsidy, millions of dollars 20% of basic education 1989 1990 1991 1992 Average 060120 67 76 90 107 85

24. Fiscal Impact: CNCA Morocco Subsidy, millions of dollars 160% of preventive health 1989 1990 1991 1992 Average 060120 67 76 90 107 85 20% of basic education

25. Redistribution

26. Redistribution Leyte-Luzon Geothermal Project Net present value ($ millions) -60 -30 0 30

27. Redistribution Leyte-Luzon Geothermal Project Net present value ($ millions) -60 -30 0 30 29.7

28. Redistribution Leyte-Luzon Geothermal Project 80% cost recovery Net present value ($ millions) -60 -30 0 30 29.7

29. Redistribution Leyte-Luzon Geothermal Project 80% cost recovery Marginal cost of public funds Net present value ($ millions) -60 -30 0 30 1.01.11.21.31.4 29.7

30. Redistribution Leyte-Luzon Geothermal Project 80% cost recovery Marginal cost of public funds Net present value ($ millions) -60 -30 0 30 1.01.11.21.31.4 29.7 9.2 -11.3 -31.8 -52.3

31. Operational Conclusions At IEPS: ä What is rationale for public intervention? ä What is best instrument for intervention?

32. Operational Conclusions ä What is the fiscal impact? ä Can we measure benefit? At IEPS: ä What is rationale for public intervention? ä What is best instrument for intervention? At APPRAISAL