IDENTIFICATION AND CONTRIBUTION OF EXTERNALITIES WITHIN COST BENEFIT ANALYSIS FOR INVESTMENT PROJECTS

Abstract

The concept of externalities has been well defined in welfare economic theory than half a century, experts who has addressed this issue are trying to maximize the individual and social welfare through an optimal allocation of resources. A correct definition of externalities say that they are: costs and benefits that appear when socio-economic activities of a group of persons have an impact on another group and the first group fail in claiming complete responsible  to its impact. We usually meet externalities in any area of economic activity, it also can be defined as third-effects (or spillover) arising from the production and / or consumption of goods and services for which is not paid an  appropriate compensation. In this context, cost-benefit analysis is a technique for assessing monetary social costs and benefits of a capital investment project along a given period of time.