Evaluation Implications of Sub-Optimum Pricing

Abstract

The note focuses on three specific ways in which sub-optimal pricing can impact on project benefits: 1) through congestion and overcrowding (Section 1); 2) through overpricing and loss of user benefits (Section 2); and 3) through financial deficits which have implications for the rest of the economy (Section 3). Sections 1-3 of the Note seek to give practical advice on each situation, including how to approach the economic analysis of the situation, and the key implications for project appraisal. If pricing policy is not known with certainty at the time of the appraisal, then alternative pricing policies must form part of the risk and uncertainty analysis. This is covered in Section 4. Conclusions are given in Section 5.