Calculating the Net Benefits to the Referent Group
The referent group in a social benefit-cost analysis is unlikely to consist only of the equity holders of the private firm, at one extreme, or everyone affected by the project in the whole world, at the other extreme. The costs and benefits to the former group were analysed in Chapter 4, and those to the latter group in Chapter 5. In this Chapter we analyse the costs and benefits to the referent group. Our client will tell us what the referent group is, and she will normally nominate all groups affected by the project (sometimes referred to as [stakeholders]) who are resident in her State or country, including effects on government receipts or payments: in the ICP Case Study discussed in the Appendices, [Thailand] is the referent group.
As noted in Chapter 1 it is sometimes easier to specify who is not a member of the referent group than to identify all the relevant sub-groups; in the ICP Case Study, of those groups who benefit or incur costs, the foreign equity holders in the firm and the foreign financial institution which lends to the project are not members of the referent group. This means that the aggregate net benefits to the referent group can be calculated by subtracting the net cash flows experienced by these two groups from the efficiency net benefits of the project discussed in Chapter 5. Thus we can open Part 5 of our spreadsheet – the Referent Group Benefit-Cost Account – by entering the efficiency net benefits row less the equity holder's and foreign financial institution's net benefit rows. (See Figure A6.2, Table 5, row 4, page 142.) We have now completed the aggregate referent group (or [social]) BCA.
We also want a disaggregated analysis of the net benefits to the referent group for two reasons. The main reason is that our client will want information about the distribution of net benefits or costs among sub-groups because this will influence the project's attractiveness to the political decision-maker. The other reason is that if we enumerate all the sub-groups affected by the project, measure the net benefits to each, sum them and get the same answer as our aggregate measure, we can be fairly sure the analysis is correct, or, at least, is internally consistent. It is very common to omit some benefits or costs in the first run of the analysis and having a check of this kind is extremely useful.
It is sometimes difficult to identify all the sub-groups within the referent group who are affected by the project, and it is not unusual for some group or category of net benefit to be