| dc.description.abstract | The topic of this thesis is the ''Estimation of the social price of investment and the shadow wage rate of unskilled labour for the Kenyan economy''. Thus
the main objective was to estimate the social price
of investment, consumption discount rate and the
shadow wage rate of unskilled labour for the Kenyan
economy.
The scarcity of resources requires that the
available one be used as efficiently as possible. This
efficiency could partly be enhanced by using social
cost-benefit analysis to distribute limited resources
among competing uses. To undertake social cost-benefit
analysis there is a need to obtain social prices which
are not available for the Kenyan economy. This thesis
is then intended to partly provide the required social
prices.
In trying to determine these prices the approach
has been to take the state of the economy as we find
it rather than to assume conditions of optimality. As
a result we identify separate social prices for inVestment
and for the rate of discount of consumption, rather
than making the conventional 'optimality' assumption
of equality between them. The guiding principle has
been to define these prices in terms of opportunity
cost.
It was found impossible to estimate the
consumption discount rates directly so indirect metnods were
used
based on market interest rates and estimates of the
marginal productivity of capital. As regards the social
price of investment, this is derived as a function
of consumption discount rate, the marginal propensity
to save and the social price of investment.
.
The crucial variables in this analysis are
the marginal productivity of capital, the marginal
propensity to save, the market wage rate, interest rates
and productivity of labour. From this one can observe
the need for data on these variables.
Due to data and other limitations we were
unable to determine a unique value for the consumption
discount rate, providing instead a range of values,
namely 10, 15 and 20 per cent per annum. This also made
it necessary to estimate three values for the social
price of investment and the shadow wage rate. Our
estimates for the social price of investment are 5.25,
2.47 and 1.60. These are rates which give us the
consumption equivalent of a unit of investment. We
estimated the shadow wage rate of unskilled labou:t
as K.Shs.303.19, 125.02 and K.Shs.71.21 per month,
based on consumption discount rate of 10, 15 and 20 per
cent respectively.
Lastly we applied the methodology to a case
study - The Kenyan Fiberboards Corporation. The results
were then compared to that of the conventional approach
and private project appraisal (using market prices) .
It was noted that the net present values obtained are
different. Since we are avoiding the conventional
'optimality' assumption we argued that the methodology
we followed appears logical.
As mentioned above the data requirements were
very large and statistics were not available in a usabl
form in several cases. However, this deficiency was
partly overcomed by using the research findings of othe
with some adjustments as necessary. Our inability to
work out a unique value of the consumption discount
rate forced us to be satisfied with minimum, intermediate
and maximum values for the social price of investment
and the shadow wage rate.
These findings will be useful as a starting
point for more research in this area. The results could
also be used, with some caution, to evaluate projects | en |
