PED guidebook main sxn rev6. FINAL.pdf - LGRC DILG 10

Strengthening Provincial/LocalPlanning and Expenditure ManagementProject Evaluationand Developmentadministrative data that can be used for this purpose. An alternative is to conduct aninterview with key informants to arrive at a rough estimate.Estimating demand and supply elasticities is a complex and sophisticated process,even for economists 10 . For purposes of the Project Evaluation, we need only toknow if demand (or supply) is price elastic or inelastic. If you are conducting a keyinformants interview, you simply ask the following series of questions:a. If the good or service is provided for free, how many do you think will avail ofthe good or service?b. If we charge a price, say Php 100 per unit (or per use or per month), howmany do you think will be willing to avail of the good or service?c. You can then vary the price quotation in b, until you arrive at the followingtable:Label Price (P) Potential Demand (D)(P 0 , D 0 ) free 100 users(P 1 , D 1 ) 100 50 users(P 2 , D 2 ) 50 75In computing the elasticity, we disregard the information on potential demandwhen the price is free. The estimate of elasticity is given by the followingformula:εDPln ( D2) − ln ( D1)=ln ( P ) − ln ( P)2 1The function ln corresponds to the natural logarithm. In the above example,we compute the following:ε DPln (75) − ln (50)= =−0.58496ln (50) − ln (100)3.2 Is the project technically feasible?3.2.1 The PED technician may enlist the help of other experts, especiallyengineers, to identify the alternative to the project. What other projectswill produce the output that the project under analysis is promising toproduce?3.2.2 In general, the type of provision may differ according to the following:a. Fixed capital requirements (land, location, resource base)b. Production techniquec. Level and quality of supply10 See Technical Appendix, pages 6-7; 23-24, for a more detailed discussion of elasticity.RGEdillon January 200630