Discuss the Little-Mirrlees approach and point out the differences from UNIDO approach to social-cost benefit analysis.



Ans. I.M.D. Little and J.A. Mirrlees have  developed an approach (hereafter referred to as the L-M approach) to social cost benefit analysis. The LM technique assumes that a country can buy and sell any quantity of a particular good at a given world price. Hence, all traded inputs and
outputs are valued at their international prices (CIF for importables and FOB for exportables) which is the opportunity cost/value of the particular good to the country. Every input is treated as a forex outgo and every output is treated as a forex inflow. All non-tradable inputs are valued at
accounting prices. These costs are broken up into tradable goods and other non-traded goods. Following this chain of production, commodities that are either exported or imported are determined for application of accounting prices. The theory assumes that non-tradable form an
insignificant part of operating costs Despite considerable similarities there are certain differences between the two approaches:
1. The UNIDO approach measures costs and benefits in terms of domestic rupees whereas the L-M approach measures costs and benefits in terms of international prices, also referred to as border prices.
2. The UNIDO approach measures costs and benefits in terms of consumption whereas the Little-Mirrlees approach measures costs and benefits in terms of uncommitted social income.
3. The stage-by-stage analysis recommended by the UNIDO approach focuses on efficiency, savings and redistribution considerations in different stages. The Little-Mirlees approach, however, tends to view these considerations together.


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