economic issues in the design and analysis of a … can be easily obtained through the design and...

ECONOMICS AND RESEARCH DEPARTMENT

ERD TECHNICAL NOTE SERIES NO. 4

David Dole

July 2002

Asian Development Bank

Economic Issuesin the Design and Analysisof a Wastewater TreatmentProject

ERD Technical Note No. 4 Economic Issues in the Design and Analysis

of a Wastewater Treatment Project

David Dole

July 2002 David Dole is an Economist with the Economic Analysis and Operations Support Division of the Economics and

Research Department, Asian Development Bank. The author thanks In-Ho Keum, Peter Choynowski, Max Clark, PeterJaques, and Geoffrey Dent for vital information and suggestions.

Asian Development Bank P.O. Box 789 0980 Manila Philippines 2002 by Asian Development Bank July 2002 ISSN 1655-5236 The views expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the Asian Development Bank.

Foreword

The ERD Technical Note Series deals with conceptual, analytical, or

methodological issues relating to project/program economic analysis or statistical

analysis. Papers in the Series are meant to enhance analytical rigor and quality in

project/program preparation and economic evaluation, and improve statistical data

and development indicators. ERD Technical Notes are prepared mainly, but not

exclusively, by staff of the Economics and Research Department, their consultants,

or resource persons primarily for internal use, but may be made available to

interested external parties.

Table of Contents Abstract v I. Introduction 1 II. Managing Water Quality through Ambient Standards 2 A. Setting Targets for Ambient Water Quality 3 B. The Economic Approach to Achieving the Given

Targets 4 C. Application of the Economic Theory to Wastewater

Treatment Plants 5 D. Practical Complications in Implementing Least-cost

Pollution Control 6 III. The Hebei Wastewater Management Project 8 A. Legal Standards and Targets for Surface Water Quality 9 B. Public Support for the Targets 10 C. Basin-wide Plans for Achieving the Targets 10 D. Economic Evaluation of the Pollution Control Plan 13 IV. Conclusions 18 V. References 20 Appendix 21

Abstract

A wastewater treatment plant is often planned as one small part in a greater system to manage ambient water quality. Indeed, that is probably the best role for wastewater treatment, since the benefits of treatment are not secured unless all current and future pollution sources nearby are also controlled. When a comprehensive and effective system for managing water quality is in place, economic analysis of an individual treatment plant will not reveal the full motivation or justification for a plant. Instead, economic analysis should focus first on the greater system to manage water quality. If the system as a whole is economically justified, then any constraint imposed on an individual project can be taken as given. In that case, economic analysis of a project would consider only whether the project meets the constraints at least cost. Standard economic theory shows that least-cost wastewater management can be achieved if all point sources are controlled and face a charge set at the marginal cost of processing wastewater at the central treatment plant. These conditions can be easily obtained through the design and management of the plant. As such, both least-cost wastewater management and the economic justification for the plant can be directly built into a project.

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I. Introduction

The economic rationale for public involvement in wastewater treatment is clear and simple. Wastewater treatment is subject to increasing returns to scale, so economic efficiency requires large-scale, centralized wastewater collection and treatment. That is, wastewater treatment is a natural monopoly, so public involvement is justified at least to the extent of regulating the firm operating the treatment plant. (Train 1994 provides a thorough discussion of the economics of natural monopoly.)

The economics of wastewater treatment is complicated, however, by the natural and institutional environment in which treatment occurs. Wastewater, whether treated or not, is quite appropriately disposed of in rivers and streams, or “surface water.” Surface water is typically an open access resource: a natural resource that people may use freely, like a public good, but which cannot be used without at least partly detracting from other people’s use. For both social and economic reasons, an open access natural resource is best managed as a common property resourcethat is, through either formal or informal government. (See Stevenson 1991 for a thorough discussion of the economics of common property resources, and Ostrom 1991 for a thorough discussion of institutions for managing common property.)

So there are at least two dimensions of public involvement in wastewater treatment: through operation or regulation of treatment plants, and through management of the water bodies receiving the plants’ effluent. Each dimension affects the design and analysis of a wastewater treatment project.

When public management of surface water is not in place, the benefits of wastewater treatment are tenuous, at best. The benefits of treatment depend on the quality of the water receiving the plant’s effluent, that is, the “ambient water quality”. If ambient water is already seriously degraded by other emissions, then cleaning up one source may not have much effect. A concerted effort is required to realize the benefits treating wastewater, but even a concerted effort can be spoiled by new, uncontrolled emissions. A wastewater treatment project is therefore better designed as one component of a greater plan to manage surface water quality.

When public management of surface water is in place, the benefits of wastewater treatment are secured. In that case, though, standard methods of project analysis do not give a complete view of the economic rationale for wastewater treatment. One can, of course, identify the costs and benefits of wastewater treatment, following the same principles as applied to other kinds of projects. But in these circumstances, an individual wastewater treatment plant is not intended as the solution to a specific problem. Instead, in such circumstances an individual plant is but one component of a larger plan, as one brick is to a wall. So to analyze a wastewater treatment project without regard to the institutional framework will not reveal the full economic justification for a project, as the analysis of one brick does not reveal the justification for a wall.

This paper discusses one common approach to public management of surface water quality, and the design and analysis of a wastewater treatment project within that management framework. The framework, discussed in Section II below, consists of targets for ambient water quality, established in law, and plans aimed at meeting the targets. Economic analysis can contribute to setting the targets, and is especially useful in developing and choosing the plans. The economic approach to developing and choosing plans is to meet the water quality targets at least cost.

ERD Technical Note No. 4 July 2002

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Economic incentives, and especially wastewater tariffs, are vital to achieving least-cost wastewater management (if not least-cost pollution control). If economically efficient wastewater tariffs are incorporated into the project, then the project is efficient by design, and little or no additional economic analysis is required.

In such a case, economic analysis is more productively focused on the overall management framework, rather than on an individual project. If the framework is consistent with economic principles, then every project that fits sensibly into that framework can be economically justified with respect to the framework. Surface water quality would be efficiently and effectively managed, and project analysis would be simple and easy.

Effective water quality management and streamlined project analysis is more than merely a theoretical possibility. The kind of water quality management described in this paper is common throughout the world, including the People’s Republic of China (PRC). Section III of this paper describes the institutional framework supporting water quality management in the Hai River Basin of PRC, and analyzes the framework from an economic perspective. The analysis shows that the institutional framework is broadly consistent with economic principles. The Asian Development Bank (ADB) has been involved in the development of plans to manage water quality in the basin, and in the funding of wastewater treatment plants there. Section III also describes one of ADB’s projects in the basin, and shows that the project is designed to achieve least-cost wastewater management.

II. Managing Water Quality through Ambient Standards Various methods of managing surface quality are in use around the world. For example, one

approach is to focus on a particular, site-specific pollution problem, and the means to address that problem. This “decentralized” approach is the only option where centralized, coordinated management is weak or does not exist. But as argued above, the benefits of addressing a particular problem cannot be secured without a coordinated approach to water quality management.

Another approach is to focus on the sources of water pollution, and to dictate the allowable practices or emissions. Initial efforts at water quality management in the United States, for example, dictated the allowable practices for water polluters, with the intent of gradually changing the allowable practices until all water pollution was eliminated. That approach proved expensive and ineffective (that is, pollution has not been eliminated), and so the United States has moved toward a system of setting targets for ambient water quality. (See Helmer and Hespanhol 1997 for a thorough description of methods to manage surface water quality.)

This section focuses on that kind of system, namely managing water quality through ambient standards. Such a system requires a detailed and elaborate legal, scientific, administrative, and judicial framework. Each of these components is essential to the system, but this section focuses only on two aspects where economic analysis can play a significant role: in setting the targets, and in developing the plan to meet the targets. There is nothing about setting ambient water quality targets that particularly or uniquely affects the design of wastewater treatment plants, but the setting of targets is discussed since wastewater treatment would be an integral part of any plan to attain the targets.

Economic Issues in the Design and Analysis of a Wastewater Treatment Project

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A. Setting Targets for Ambient Water Quality Water quality is fundamentally a scientific concept, encompassing the physical, chemical, and

biological characteristics of water. A water quality target, in contrast, is fundamentally a socioeconomic concept, focusing on society’s intended or desired use of the water. The use of the water, of course, depends on the scientific characteristics of the water. So the first step in setting targets is to establish the entire range of potential uses of surface water, and determine what characteristics would support each intended use. To be consistent with the terminology in Section III, a potential use of water is referred to as a water quality “class.” Socioeconomic analysis (plus common sense) can help establish the set of classes, but the real work at this stage is in defining the classes in scientific terms. (See Enderlein et al. 1997 for a review of water quality classes.)

Once the classes are defined in scientific terms, the next step is to decide what class should apply as a target to each body of water, or in the case of rivers and streams, each reach. In contrast to defining the classes, setting the targets is almost exclusively a socioeconomic process, since setting a target requires a consideration of the tradeoffs among competing uses of water.

Societies typically make collective decisions through either a political or bureaucratic process. A political process may (and ideally, should) be informed by economic analysis, but economics would clearly be subordinate to the overall political process. It is perhaps more natural, though, for water quality targets to be set through a bureaucratic process (that is, within established agencies of government), since setting targets is a technical issue that is not likely to appeal to either politicians or the general electorate.

The form of a bureaucratic decision process is ideally determined by a political process, to ensure that the ultimate decision incorporates public (rather than strictly bureaucratic) preferences. A political process may, for example, decree that a bureaucracy set the targets to minimize the risk to public health, to restore aquatic ecosystems to their natural state, or to meet any of a variety of goals. The authorized agency would then assemble the required information, and make the decision on the legally stipulated grounds.

Economic analysis can play a major role in setting targets if, say, the political process decreed that targets should be set by standard benefit-cost analysis. To set a target by standard benefit-cost analysis, a bureaucracy would collect information on the monetary value of the benefits that would result from moving from the current level of water quality to another level. Given the targeted level of water quality, the bureaucracy would determine the least-cost means of meeting that target. The optimal target is that target where the benefits of moving to that target most exceed the costs of attaining it.

Although mainstream economists focus heavily on standard benefit-cost analysis, in fact there are many other reasonable methods of social choice, including other methods firmly based on economic theory (see, for example, Arrow et al. 2002). Targets that do not maximize net benefits can still have social value, and in fact can still have maximum “economic” value, if the social choice method is based on economic theories other than standard benefit-cost analysis.

The common feature among reasonable social choice methods is that each is based on people’s preferences. A reasonable method of social choice assesses people’s individual preferences, and then integrates these preferences somehow to derive public preferences. Social choice made through a democratic political process will be driven directly by individual preferences, but social choice made through a bureaucratic process must involve soliciting people’s preferences. Public


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participation is therefore the key to ensuring social value in social choice. This holds for any method of social choice, including standard benefit-cost analysis.

B. The Economic Approach to Achieving the Given Targets

Having established water quality targets, the next step in building the system to manage

water quality is to establish effective monitoring and enforcement. Economic analysis can contribute to developing monitoring and enforcement mechanisms, but as long as the mechanisms are effective, monitoring and enforcement does not affect the design and analysis of a wastewater treatment project. If the mechanisms are not effective, then the water quality targets are strictly nominal, and the project should be designed and analyzed as if no standards or targets existedthat is, by standard benefit-cost analysis. If the mechanisms are effective, then the targets can be taken at face value.

Taking the water quality targets as given, economic analysis of a wastewater treatment project would then be based strictly on cost. That is, the economic approach to achieving the water quality targets would choose the least-cost plan that achieves the targets.

Least-cost analysis, like standard benefit-cost analysis, treats all costs as equal and comparable. But despite that similarity, least-cost analysis is usually not as problematic as benefit-cost analysis. Perhaps the biggest limitation of benefit-cost analysis arises when benefits include general welfare effects on individuals, with the welfare effects translated into monetary units; the problems result both from translating individual preferences into money, and making comparisons of monetized welfare across different people (see Sagoff 2000 and Hammond 1993.) In contrast, the cost of meeting water targets is typically a financial cost to firms. In standard economic analysis, the value of a firm is determined strictly in monetary terms, so comparing monetary impacts across firms is less of a problem, unless those monetary impacts are directly and exclusively associated with specific people (as in a small firm).

A simple approach to least-cost analysis would focus only on the design of the treatment plant. For example, the treatment plant may have an effluent quality standard, so least-cost analysis would consider whether the plant is designed to meet that standard at least cost. The least-cost option could be easily identified by comparing the cost of alternative designs that met the effluent standard.

This simple approach to least-cost analysis, however, establishes only that the cost is minimized at the treatment plant, and is not sufficient to establish that cost is minimized across the local area. To establish that cost is minimized across the local area, the economic analysis can draw on the economic theory of pollution control.

The economic theory of least-cost pollution control involves two components: (i) an estimate of the maximum pollution load that would achieve the given water quality target; and (ii) a pollution abatement cost function at every pollution source. (The pollution abatement cost function gives the cost of reducing or removing waste from the waste stream; abatement cost is not necessarily the same as the operating cost of a treatment plant.) Given this information, the least-cost plan of achieving the target would allocate the total allowable emissions across sources such that the marginal abatement cost is equal across all sources, including the central treatment plant. (See Hanley et al. 1997 for a thorough review of the economics of pollution control.)

The first component (maximum pollution load) is strictly a scientific matter, although far from a simple one. Establishing the maximum pollution load requires advanced expertise in water


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quality modeling, and would be an expensive and time-consuming project. In the early stages of developing a pollution control system, the highest priorities would typically be to respond quickly to the most important pollution problems, and to show progress in improving water quality. Establishing maximum pollution loads is usually not a high priority. Without this scientific information, though, the given water quality target could only be achieved through a process of trial and error.

The maximum pollution load, however, is only required to achieve the given water quality target, and is not requred to achieve least-cost pollution control. If maximum pollution loads are not known, then the economic approach to water quality management would achieve the resulting level of water quality at least cost, although the resulting level need not be the targeted level.

Regardless of the maximum pollution loads, least-cost pollution control can be achieved through at least three different approaches. First, in a “command and control” approach, a regulatory agency would dictate to each source the amount of pollution it is allowed to emit. To determine the allowable emissions per source, the regulatory agency would need information on the marginal abatement cost for each firm: the extra cost to the firm of reducing its emissions by one additional unit. Such information is very difficult to obtain, so this form of “command and control” is an impractical method of achieving least-cost pollution control.

Second, in the “market-based” approach, the regulatory agency would issue transferable emission permits, with the total emissions across all permits equal to the maximum pollution load (or whatever limit is decided, if maximum load is unknown). If two firms have different marginal abatement costs at the level of emissions allowed under their given permits, then the two firms will each save costs by transfering permits to the firm with higher abatement cost. (Of course the firm with higher costs pays the other firm for giving up its permits, but that exchange of funds is a mere transfer and does not affect the true economic cost.) Transfer of permits would occur as long as there are significant differences in marginal abatement cost. If the cost of transfering a permit is negligible, then the marginal cost of abatement would eventually be equalized across firms.

And third, in the “economic incentives” approach, the regulatory agency would assess a uniform charge per unit of emissions (uniform across similar emissions). Each firm could reduce its total operating cost if it lowered its emissions until the cost of further reducing emissions was greater than the emission charge. If the maximum pollution load is known, the regulatory agency would set the charge at the level such that the total emissions that resulted is less than or equal to the maximum. If the maximum pollution load is unknown, the agency could adjust the charge until water quality reached the targeted level. (A variable or even temporarily changing tax rate has its own disadvantages, though, since it increases uncertainty and so complicates private investment decisions.)

C. Application of the Economic Theory to Wastewater Treatment Plants

This general economic theory of pollution control applies to emissions directly to surface

water, rather than specifically to emissions to a sewer connected to a central wastewater treatment plant. One can easily adapt the theory to the design and management of a centralized wastewater treatment plant, though. In fact, centralized wastewater treatment is probably the ideal context in which to apply the theory.

Other principles, besides economic ones, are also important in wastewater treatment, though, and these other principles must also be accommodated in the design and management of a


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centralized plant. Financial viability, in particular, is one noneconomic principle that is most likely to conflict with economic principles. That is, public policy may require that a publicly owned and operated sewerage utility should generate sufficient revenue from its users to cover all of its capital and operating costs.

A sewerage system and wastewater treatment plant can indeed be designed to achieve least-cost water quality management and financial sustainability. In addition to the tariff for processing wastewater, the most important factors are the extent of the sewerage network and the scale of the treatment plant.

Achieving full cost recovery in a sewerage utility requires thorough and detailed financial analysis, analysis that is beyond the scope of this paper. But for the purposes of the discussion here, it is assumed that full cost recovery is implemented through a tariff assessed on each connection to the sewer. The tariff is set at the total average cost per unit of wastewater processed (including conveyance cost as well as treatment). The sewerage utility measures the volume of wastewater discharged to the sewer, and each connection is charged an amount equal to the tariff times the volume discharged. The sewerage utility thus earns revenue equal to all of its cost, including both fixed and variable costs.

As mentioned above, least-cost pollution control can be achieved through a uniform charge set at the level of marginal cost. If financial viability requires that the tariff be set at average cost, then marginal cost and average cost must be equal. According to basic microeconomic theory, average cost and marginal cost are equal when production occurs at the level of least average cost. So marginal cost and average cost pricing can be achieved simultaneously by designing a plant so that it will operate at the level of least average cost.

Finally, marginal cost pricing will achieve least-cost pollution control if all (equivalent) pollution sources in the relevant area face the same price. Assessing a common charge on all pollution sources can be achieved by designing the sewerage network so that it includes all significant point sources.

In summary, a sewerage network and treatment plant will be financially sustainable and will achieve least-cost pollution control if

(i) the utility assesses a tariff set at the utility’s average cost; (ii) the treatment plant operates at minimum average cost; and (iii) the sewerage network includes all emissions that would otherwise drain into the same

reach as the treatment plant.

D. Practical Complications in Implementing Least-cost Pollution Control All of the three factors above can be incorporated into the design of a wastewater treatment

project. Other considerations in the design, though, may require sacrificing at least one of the factors above. For example, if (as is likely) the amount of wastewater is increasing over time, then the treatment plant will be designed with excess capacity relative to the amount of wastewater currently generated. The plant may therefore be operating, initially, at a level where average and marginal cost are not equal, and a tariff set at average cost would not achieve least-cost pollution control. If, however, the plant eventually reaches capacity, then least-cost pollution control would be achieved in the long run.

Installing excess capacity can be economically justifiable if the full capacity is utilized in the near (or at least not distant) future. In the short run, though, financial independence and least-cost


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pollution control can both be maintained through a two-part tariff. Two-part tariffs are typically used in telecommunications pricing, and include a fixed charge to cover the system’s capital costs, plus a variable charge to cover operations and maintenance (Mitchell and Vogelsang 1991). Setting the variable charge at marginal cost therefore would achieve both financial independence and least-cost pollution control.

In the absence of a two-part tariff, a simple model of production costs can help gauge the difference between average and marginal cost pricing. A typical treatment plant can run at constant marginal cost up to and slightly beyond the engineer’s design capacity (Clark 2002). The design capacity is an engineering concept, and essentially indicates the rate of production at which capital constraints are reached. The design capacity is typically a conservative estimate, so capital constraints are likely to be reached at a slightly higher rate of production.

So suppose that marginal cost increases at a constant rate beyond the point of constant marginal cost. Average cost is minimized only where marginal cost is increasing, so the optimal economic rate of operation of the plant will be above the design capacity. Suppose that marginal cost starts increasing at a multiple of f1 > 1 of the design capacity Q0, and that average cost is minimized at a multiple of f2 > f1 of the design capacity. If the plant is operating at a multiple of f > f1 of the design capacity, then the difference between average and marginal cost is (K/fQ0)* ( ) ( )�

�

�

�

��

�ff/ff −− , where K is the plant’s fixed cost (see the appendix for derivation of

the formula). The difference is increasing in f2, so an upper bound on the difference could be estimated by taking the largest feasible value of f2. The economic significance of this difference depends on how sensitive wastewater generation is to the tariff (that is, the price elasticity of the demand for discharging wastewater).

Another complication in implementing least-cost pollution control is that either the terrain or the size of the city may make it economical to have independent sewerage networks, with each network serviced by its own treatment plant. Uniform and simultaneous control of point sources is a vital element of least-cost pollution control, an element that a single, comprehensive sewerage network provides automatically. With multiple, independent networks, uniform and simultaneous control will occur if all treatment plants are identicalthe same scale, inflow, and treatment technology. If, however, the treatment plants are different, then control must be explicitly built into the system.

The distinction between a treatment plant’s operating cost and abatement cost is important when there are several different treatment plants discharging to the same reach. The operating cost is the cost of processing an average unit of wastewater to meet the treatment plant’s targeted effluent quality; the effluent quality is taken as given. The abatement cost, in contrast, is the cost of reducing the waste load in the plant’s effluent, regardless of the targeted or design standard. Of course the targeted effluent quality and the operating cost are the focus of the design and management of a plant. But the abatement cost and actual effluent quality are most important in implementing least-cost pollution control across a system of different treatment plants.

Least-cost pollution control requires that the marginal abatement cost be equalized across all sources, including the central treatment plants. So if the plants are different, then the operation of the plants would have to be coordinated to equalize their marginal abatement costs. This may require some plants operating above or below their design effluent standards, say through a change in variable inputs.


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In other words, a “command and control” approach would be applied at the level of the central treatment plants. The difficulty with implementing “command and control” is getting sufficient information about abatement costs, and coordinating the generation and treatment of wastewater across many sources. With a system of different treatment plants, though, this difficulty is largely avoided if the plants are controlled through a single municipal utility company.

Another way that uniform and simultaneous control can be lost is if there are significant point sources outside the service territory of any treatment plant (whether there are many or just one plant). In that case, the point sources outside the service territory must also be charged the same wastewater tariff, even though they are not discharging to the sewerage network. Assessing a tariff on sources outside the system could present political or at least public relations problems, though, since wastewater tariffs are typically presented as “user charges”: the tariff provides the payee with a service or “benefit”, namely the conveyance and treatment of wastewater. Assessing the same wastewater tariff outside the service territory, then, could conflict with the stated justification for the tariff.

Yet another common impediment to least-cost pollution control is the way wastewater tariffs are assessed. Wastewater tariffs are commonly assessed on the volume of wastewater discharged, or on the volume of water used, without measuring the quality of the wastewater. But the waste load, as opposed to the mere water volume, is the focus of least-cost pollution control.

To achieve least-cost pollution control, the wastewater tariff should send a signal to generators about the cost of treating that wastewater at the central treatment plant; if the cost of treatment is less at the point of generation, then the generator has the incentive to treat it there, and society as a whole saves cost. But if the firm is already discharging clean water (for example, the water is used only for cooling), then a wastewater tariff would not contribute to pollution control. Indeed, it might even be justifiable to subsidize a firm discharging clean water. Without monitoring of wastewater quality, the best that could be achieved through marginal cost pricing is least-cost “wastewater management.”

Of course it would be prohibitively expensive to monitor the quality of every source discharging to a sewer. This limitation could be at least partly overcome by defining different classes of discharges, by wastewater quality, and then assessing a different tariff to each class, according to the marginal abatement cost of treating all of the wastewater in that class. Such a tariff, however, would still not send the kind of signal envisioned in the economic theory of pollution control, since it provides dischargers only with the incentive to reduce the volume of wastewater discharged. Least-cost pollution control would be achieved only if the volume is closely related to the waste load.

III. The Hebei Wastewater Management Project In 2001, ADB analyzed a proposal for a loan to the government of Hebei Province, PRC,

with the proceeds of the loan used to help finance the construction of five municipal wastewater treatment plants. The plants would be constructed in Baoding, Chengde, Tangshan, Xuanhua, and Zhangjiakou. ADB’s standard guidelines for economic analysis call for a benefit-cost analysis of proposed projects, but such an analysis would not have revealed the full economic justification or motivation for the project in Hebei Province.


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Hebei Province lies within the Hai River Basin, and ADB had previously funded the development of a comprehensive plan to manage water quality in the Hai River Basin, the Hai River Pollution Control and Prevention Plan (the “Pollution Control Plan”, or the “Plan”). Water quality management in the Hai River Basin is based on ambient water quality targets, and the Pollution Control Plan was aimed at meeting the targets. The Hebei Wastewater Management Project (the “Project”) was motivated largely by the Pollution Control Plan, so the economic analysis and justification of the Project depended at least partly on the Plan.

This section applies the concepts discussed in Section II to analyze the Project. The analysis shows that the water quality targets in Hebei Province have general support from the public, and so provide a reasonable basis to develop plans to manage water quality. Scientific information on water quality in the Hai River Basin is still quite limited, so the water quality targets can be approached only with some uncertainty. Despite the uncertainty in meeting the targets, though, the analysis shows that the Project is designed to manage municipal wastewater at least cost.

A. Legal Standards and Targets for Surface Water Quality

The current institutional framework for managing surface water quality in Hebei Province

consists of two main components: (i) legal standards and targets for surface water quality; and (ii) the policies, regulations, and plans aimed at meeting the given targets. The standards and targets are therefore the foundation of the framework, and the starting point for an evaluation.

The 1996 Water Pollution and Prevention Law authorized setting standards for surface water quality, and using these standards to set targets for individual watercourses. Under the law, the State Environmental Protection Agency (SEPA) was charged with defining the technical standards at a national level, and deciding what standards (or targets) should apply to certain key watercourses.

The standards consist of five main classifications of surface water quality, set according to the intended use of the water. Classes I, II, and III apply to surface water that is intended for potable purposes. Classes IV and V are for surface water intended only for irrigation or industrial use. Each class is defined by 30 criteria, prescribing numeric ranges for the physical, chemical, and biological properties of water, such as temperature, pH, and coliform counts (SEPA 1998).

Once SEPA defined the water quality classes, the next step in the process was to determine which class of water quality should apply to a given river reach. SEPA itself set the desired or targeted water quality class for some key, strategic, river reaches. More generally, though, the relevant environmental protection department at either a municipal, provincial, or state level was responsible for setting the targeted water quality class.

Table 1 (ADB 1999) shows the targeted water quality and current water quality for the reach below each proposed treatment plant in the Project. The table shows that ambient water quality in the reach below each project site does not meet the targeted water quality standards, and is generally worse than the targeted quality by a wide margin.

Table 1. Targeted and Actual Water Quality in Treatment Plants

Project Component Targeted Class Pre-project Situation

Baoding III (Baiyangdian Lake) V Chengde II (Wulie river ) > V Tangshan IV > V Zhangjiakou and Xuanhua III > V


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B. Public Support for the Targets Before the water quality targets were finalized, there was a consultative process within

government to resolve differences of view over the designated beneficial use of the river reach, and over what target could reasonably be met (ADB consultant, personal communication). Different kinds of water users were represented in this process through the relevant ministry or government department (for example, farming interests are represented by the Ministry of Agriculture). There was no formal requirement in the target-setting process for broader public consultation, but apparently some informal involvement of NGOs, universities, and professional bodies did occur.

Setting targets for surface water quality is a fairly technical and detailed process, and this process is naturally the responsibility of a bureaucracy, rather than a matter for, say, a plebiscite. So in this sense, PRC’s process of setting targets is both proper and consistent with best practices in other countries. In best international practice, though, individual water users are more involved in the process, they have more rights to challenge bureaucratic decisions, and the government directing the bureaucracy is more accountable to the public.

Despite the public’s limited role in determining environmental policy, it appears that there is ample public support in PRC for environmental policies in general. Socioeconomic surveys undertaken in the PRC have indicated strong public interest in the environment, and also broad support for environmental laws. Surveys have also indicated public dissatisfaction with the effectiveness of government enforcement action to ensure compliance with environmental laws, which may indicate demand for further improvements in environmental quality.

Although there is no specific information indicating the public’s interest in the water quality targets in the Project areas, the survey conducted for the Project indicated general public support for improved water quality management. In the project cities, 61 percent of survey respondents rated “a clean environment and unpolluted rivers” as “most important”, and installing a sewerage system was the number one priority for urban improvement (ADB 2001). The analysis of other recent ADB-funded projects in PRC found similar support for water quality management and environmental improvement.

In summary, the potential for public involvement in setting targets is limited by the technical nature of the matter itself. Hence, the generally limited role for public participation in PRC is, in this case, not inconsistent with best practice. The justification for the targets (and the Project) would be stronger if there was more direct evidence of public participation and support for the chosen water quality targets. However, public support for environment policies, in general, and public concern for water quality expressed in the survey for the Project both indicate that the given water quality targets are broadly consistent with public preferences.

C. Basin-wide Plans for Achieving the Targets

Various national policies, regulations, and plans affect water quality management in the Hai

River Basin and Hebei Province. For example, building regulations from the Ministry of Construction require the construction of septic tanks for all new residential and other nonindustrial developments; new developments are excused from this requirement if they discharge to a sewer connected to a wastewater treatment plant. The Tenth Five-Year Plan requires progress in establishing discharge permits, installing continuous monitoring for larger industrial discharges, and moving toward a system of setting discharge limits based on total pollution loads.


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The most important initiative, though, is clearly the Pollution Control Plan. The Plan provides a strategic framework for pollution control and prevention in the Hai River Basin. Following State Council’s approval of the Plan in 1999, each of the provinces and provincial-level cities within the Hai River Basin (Hebei, Henan, Shandong and Shanxi provinces, and Beijing and Tianjin municipalities) obtained SEPA's endorsement of a pollution control plan for that part of the Hai River Basin within its jurisdiction. Each municipality prepared subordinate local plans.

The Pollution Control Plan identified more than 660 potential projects to enhance water quality in the basin. The projects were initially identified at the local level, according to local preferences and priorities, and subject to national objectives and regulations. The projects are not mutually exclusive alternatives, but instead were proposed solutions to locally identified pollution problems. A wide variety of projects were identified, including watershed management, effluent reuse, clean production processes, as well as standard point-source pollution control projects.

The Pollution Control Plan does not, by itself, provide a feasible plan to meet the basin’s water quality targets, since it merely identified potential projects without prioritizing them. To help refine the Plan, ADB funded the development of a refined Hai River strategic plan, which was completed in December 1999 (ADB 1999). The results of the study included an Immediate Implementation Plan and a Strategic Basin Management Plan. The Immediate Implementation Plan was developed by assessing and prioritizing each of the projects in the Plan, while the Strategic Basin Management Plan addressed the long-term strategy.

Prioritizing the hundreds of projects in the Pollution Control Plan followed a two-stage procedure. First, projects were omitted that did not have a clear environmental benefit, that were not clearly related to the aims of the Plan, or that were either completed already or obviously not feasible. The remaining projects were mainly large or centralized point-source pollution control projects.

After the initial screening, a relatively simple method was developed to assign a score to each project. Table 2 (ADB 1999) shows the factors that went into the score, and the weight for each factor. The scoring method was discussed at the Inception Workshop for the ADB TA project and then refined according to feedback, so there was at least some opportunity for public participation in developing the method.

Table 3 shows the scores for wastewater treatment projects in Hebei Province. The Project includes the highest scoring treatment plants in each of the three planning zones. Only the plant for Tangshan New District received a relatively low score.

The Tangshan treatment plant was included in the Project because of significant changes in Tangshan since the completion of the refined plan. The treatment plant at Tangshan is planned for the “New District”, so called because the district has been redeveloped following the Great Tangshan Earthquake of 1976 (the deadliest earthquake of the 20th Century). The New District’s development plan was approved after the scoring method was completed. As a result, the New District will undergo much faster development than was earlier thought, and the treatment plant for the New District will be a significant component of the district’s future development. A project funded by the World Bank is also addressing wastewater treatment in Tangshan, as well as two other cities in Hebei Province.

Table 3 shows the “prioritizing score” for all proposed wastewater treatment projects in Hebei Province (ADB 1999).


12

Table 2. Factors and Weights used to Prioritize Pollution Control Projects

Factor Weight Comment Affected population downstream

High: 6 Medium: 3 Low: 1

High > 500,000 > Medium > 100,000 > Low

Risk to public health High: 8 Medium: 5 Low: 2

Subjective assessment based on risk to drinking water supply, location, etc.

Irrigated land downstream


Considers quality of land, if known.

Employment protected


Adjusted depending on protected employment as percentage of total employment.

Targeted water quality

Classes I or II: 6 Class III: 4 Class IV: 2 Bo Hai Bay: 2 Class V: 1

Adjusted upwards or downwards, depending on difference between actual and targeted quality.

Pollution load removed


Based on COD and a subjective assessment of the industry.

Unit cost of pollution removed


Based on cost of COD, or subjective assessment.

Water efficiency savings


Considered potential value of reuse of treated wastewater.

Each plant in the Project included at least some development of the sewer network in the

city. The network was designed so that it covered the entire city and all significant point sources, a feature that is somewhat rare in municipal wastewater management in PRC. The Pollution Control Plan requires that specific cities (determined by size and location) install secondary wastewater treatment plants; each of the five cities in the Project are on the list of cities required to install secondary treatment. SEPA also requires secondary treatment for all new treatment plants that discharge to inland water courses. Hence, each plant in the Project will provide secondary treatment. The plants are expected to be completed by 2005, and will be operating at full capacity by 2010.

Each component of the Project is designed to achieve full cost recovery through wastewater tariffs. The proposed tariffs are consistent with broad public policy in PRC, and are supported at the local level. For example, PRC’s economic and enterprise reform programs require that all wastewater management projects be financially sustainable. Recent policy guidance on setting wastewater tariffs dictates that wastewater tariffs be set at the level of full cost recovery. Hebei Province is one of the priority areas for implementation of this policy.


13

Table 3. Scores of Components of Wastewater Treatment Projects in Hebei Province

Planning Zone Municipality or Prefecture Treatment Plant Score Daqing River Baoding Baoding City 40 Baoding Mancheng County 36

Luan River Chengde Chengde City 44 Chengde Shuanluan 44 Chengde Chengde Cnty Paper 42 Chengde Xiabangcheng 42 Tangshan West Suburb 40 Tangshan Zunhua City 39 Tangshan Qian'an 39 Tangshan Zunhua Fertilizer 38 Qinghuangdao East Suburb 37 Chengde Xinglong County 36 Chengde Pingquan County 36 Chengde Yingzi Mine 36 Tangshan New District 36

Yongding River Zhangjiakou Zhangjiakou City 42 Zhangjiakou Xuanhua 42 Zhangjiakou Hualai 42 Zhangjiakou Zhangjiakou Pharm. 39

D. Economic Evaluation of the Pollution Control Plan There are at least two facets to the economic analysis of the Pollution Control Plan. First,

the analysis should consider the priorities assigned to all projects in the Plan, and whether those priorities make sense from an economic perspective. Second, the analysis should focus on individual or specific projects within the Plan, and whether those projects are designed to meet the goals of the Plan in an efficient (that is, least-cost) manner; the analysis here focuses on the five projects that are in the Hebei Wastewater Management Project.

The Pollution Control Plan is clearly too large to be implemented simultaneously, and so sensible implementation requires a ranking or prioritization of the many components of the Plan. The standard economic approach to ranking the projects would estimate the net benefits of meeting the targets for every reach. It is clearly not feasible, though, to conduct a benefit-cost analysis for each of the hundreds of projects in the Pollution Control Plan. But ranking the projects does not require a detailed benefit-cost analysis of each and every project, since it is necessary only to identify that a given project has higher or lower net benefits relative to the others. From that perspective, a streamlined approach to ranking, such as that described above, is justified. The only question is whether the actual approach used is consistent with benefit-cost analysis (or other economic criteria).

Table 4 lists the kinds of benefits that each type of water use would experience from improved water quality. The table also indicates whether that benefit is associated with any of the factors in the ranking method listed in Table 3. Table 4 shows that most of the benefits of improved water quality are at least related to the factors included in the ranking method.


14

Table 4. Benefits of Water Use from Improved Water Qualitya

Use Benefit Included in Ranking

Domestic self-supply

Lower treatment cost Lower medical expenditure Fewer sick days Reduced mortality

� � � �

Municipal water supply

Lower treatment cost Lower medical expenditure Fewer sick days Reduced mortality

� � � �

Irrigation

Lower treatment cost Increased productivity Avoided productivity losses Increased quality

� � � �

Livestock watering

Lower treatment cost Increased productivity Lower medical expenses Increased quality

Not applicable

Industrial self-supply Lower treatment cost

Commercial fishing

Increased productivity Avoided productivity losses Increased quality

Not applicable

Recreation

Lower travel cost Increased recreation days

Aesthetics Increased property values

Macroeconomic

Avoided unemployment from firm closures

�

aRelative to the ranking method in Table 3. The last two factors in Table 3 (unit cost of pollution removed and water efficiency savings)

are related to the cost of treatment. The cost component of treatment is much simpler than the benefit component, and the last two factors in Table 3 capture virtually all of the essential components of cost.

Perhaps the biggest limitation in the ranking method is that it is not explicitly based on the marginal impact of a treatment plant on water quality downstream. The size of the affected population and the risk to public health, for example, are clearly related to the benefits of water quality improvement. But if water quality is already satisfactory upstream of a large city, then installing a treatment plant upstream would not necessarily have the same benefit as installing treatment plant upstream of a smaller city on a heavily polluted river.

Two factors in the ranking method, the “targeted water quality” and the “pollution load removed”, help make up for the lack of a measure of marginal impact. The “targeted water quality” is related to the potential marginal benefits of water quality improvement, since it is based on the


15

difference between actual and targeted water quality. The “pollution load removed” is related to the potential marginal improvement in water quality, whether or not there is any benefit to the improvement. These two factors are also related to the other factors in the ranking method, so there is some redundancy across the factors. The redundancy has the effect of increasing the weighting assigned to some of the benefits, and so is not necessarily a serious flaw in the ranking. In any case, the potential redundancy is certainly worth contribution of these factors to gauging the marginal benefit of improving water quality.

In summary, the ranking method is a simple and efficient means to process a lot of information, which of course is its aim. Despite the simplicity, the method includes the most important benefits and all of the costs, and includes measures related to the potential marginal benefits of water quality improvement. As such, the method is broadly consistent with economic principles, in general, and standard benefit-cost analysis in particular.

As mentioned above, authorities have recently been authorized to develop estimates of maximum pollution loads, in Hebei Province and across PRC. The current lack of such information is not unusual for a water quality management system that is in the early stages of development, like that in Hebei Province. In fact, the United States is still developing maximum pollution loads for its surface waters. But since the maximum pollution loads for the Hai River Basin are not yet known, at this stage the plans for achieving water quality targets can be implemented only with some uncertainty about the impact of the plans on ambient water quality.

In the absence of a water quality model, a useful indicator of the potential impact of a treatment plant is the observed water quality above and below the service territory of a plant (or more generally, above and below the city if the city has more than one sewerage network). The difference in observed water quality shows the impact of current wastewater discharges on water quality, and shows the maximum impact that a plant can have on water quality. That is, if water quality above the plant does not meet the target, then installing a single treatment plant will not be sufficient to meet the water quality target. Table 1 shows the water quality target and water quality below the proposed site of each treatment plant, but water quality data above the plants is not available.

The lack of knowledge of maximum pollution loads and potential impact of each plant limits the economic evaluation of the plan to achieve water quality targets. That is, absent such information, one cannot determine whether the proposed level of treatment (secondary for each plant) is necessary or sufficient to attain the targeted water quality. It is clear, though, that centralized treatment of municipal wastewater, as proposed in the Project, is consistent with the least-cost management of water quality (wastewater treatment is subject to decreasing average cost over a wide scale of operations; see Fraas and Munley 1984). Furthermore, the level of treatment proposed (secondary) is consistent with standards in other countries, particularly the United States.

Taking those limitations as given, economic analysis would consider the cost of wastewater management at the treatment plant, and across the service territory. Analysis of the treatment plant considered three kinds of alternatives: (i) alternative treatment processes; (ii) alternative sites for the new or expanded wastewater treatment facilities; and (iii) alternatives for wastewater collection, including alternative routes for interceptors, trunk sewers, and replacement of existing overloaded or deteriorated sewers. The treatment process is the most expensive component of the Project, so it is the most important element in the least-cost analysis.

Table 5 (ADB 2001) shows the cost of the chosen treatment process relative to the best alternative. Except for the plant at Baoding, the chosen option is the least-cost alternative. The more expensive option was chosen for Baoding, because that option used a technology similar to that of


16

the treatment plant already in operation near the proposed site. Using similar treatment technology at adjacent plants can save operation and maintenance costs, since the same labor and materials can be used at both plants. This kind of cost saving is important but difficult to quantify. Engineers in the feasibility study advised using the same technology for the plant at Baoding, and absent other information, the chosen treatment process appears justified despite the higher cost.

Table 5. Comparison of Cost of Treatment Options

Project Component

Cost of Chosen Option Relative to Best Alternative (%)

Chengde 95 Xuanhua 96 Tangshan 97 Zhangjiakou 97 Baoding 113

Each plant includes two key aspects that, given the proposed level of treatment, are required

to achieve least-cost wastewater management across the local area. First, each sewerage network in the Project is designed to capture all of the major point sources in the feasible service territory of the plant. Second, all sources discharging to the sewers will face a uniform tariff set at the level of “full cost recovery”. As discussed in Section I, only one other factor is required to provide a complete set of incentives for least-cost pollution control: each plant should operate at the minimum efficient scale, or where average and marginal cost are equal.

The Project is designed so that each treatment plant will reach its “design capacity” by 2010. As discussed in the previous section, this means that each plant will be operating at constant marginal cost until sometime beyond 2010. Since average cost exceeds marginal cost where marginal cost is constant, a tariff set at average cost will exceed marginal cost. Hence, the tariff is above the level that would provide the right economic incentives for least-cost wastewater management. This means that the Project will promote excessive on-site wastewater management even while there is spare capital at the central treatment plant.

How much on-site wastewater treatment occurs depends on how much marginal cost differs from the actual tariff, and on the price elasticity of demand for wastewater discharge. The elasticity of demand is not available, so incentives for on-site wastewater generation can be evaluated only with respect to the difference between marginal cost and the tariff.

Table 6 shows the initial tariff relative to the marginal cost of processing wastewater (operation and maintenance costs) at each treatment plant (ADB 2001). For each plant, the tariff is more than double the marginal cost of processing wastewater at the plant.

Table 6. Initial Tariff Relative to Marginal Cost of Processing Wastewater

Project Component Initial Tariff Chengde 2.77 Xuanhua 2.56 Zhangjiakou 2.56 Tangshan 2.50 Baoding 2.17


As operation of the treatment plants expands, average cost should fall and marginal cost should rise, ideally to the point where they are equal. The Project therefore has the potential for achieving least-cost wastewater management in the long run. The model of production cost discussed in section I.D can provide at least a preliminary assessment of the difference between marginal and average cost beyond the start of operations for each plant. Engineers for the Project estimated that capital constraints would be reached at 10 percent above the design capacity, and that the plants could not maintain their designed effluent targets running at more than 50 percent above their design capacity. Hence, the marginal cost would start increasing at 110 percent of design capacity, and the minimum economically efficient rate of production is between 110 and 150 percent of design capacity.

Figure 1 shows the estimated difference between average and marginal cost, expressed as a percentage of average fixed cost, and assuming the economically efficient scale occurs at 30 percent above the design capacity. Four of the plants will reach the economically efficient scale of operation by 2015; the plant at Zhangjiakou reaches that scale sooner, by about 2012. The plant at Tangshan does not reach the economically efficient scale by 2020. Although Tangshan would reach the design capacity by 2010, along with the four other plants, the projected growth of wastewater generation in Tangshan is lower than at the other plants. The economic significance of the difference between average and marginal cost cannot be determined without information on the price elasticity of demand for discharging wastewater.

In summary, four out of the five plants have the potential for promoting full cost recovery and least-cost wastewater management, at least in the long run. That is, the plants are designed to cover all point sources, all point sources will be charged a uniform tariff set at the average cost of treatment, and the average and marginal cost could be equal by around 2015. Only the plant at Tangshan will not run at the economically efficient scale in the foreseeable future. With the tariff set above marginal cost, Tangshan will promote too much on-site wastewater management. This could be corrected, though, with a two-part tariff. (At the time of writing, PRC is engaged in a nationwide study of wastewater tariffs, with the aim of establishing national guidelines for setting wastewater tariffs; see ADB 2001.)

0.6

17

0.0

0.1

0.2

0.3

0.5

0.5

Ave

rage

Co

st-M

argi

nal

Co

st

2005 2010 2015 2020

ZhangjiakouXuanhuaZhangjiakouXuanhua

BaodingTangshan

Chengde


18

IV. Conclusions Wastewater treatment makes the most sense as part of a comprehensive system to manage

surface water quality. When such a system is not in place or is not effective, wastewater treatment can justifiably be pursued as an independent initiative, but the benefits of treatment could be lost through pollution from other uncontrolled sources. Establishing a comprehensive and effective system to manage water quality not only secures the benefits of wastewater treatment, but it also provides a strong context, motivation, and justification for treatment.

Establishing a comprehensive and effective system to manage water quality affects the economic analysis of a wastewater treatment project. In this case, analyzing a project independent of the system would not contribute to the overall analysis of the project. If the system is well designed, then each component of the system should be economically justified; conducting an independent project analysis to show that again is clearly unnecessary. If the system is not well designed, then an independent project analysis could reveal just that. But in that case, an independent project analysis is not a sufficient critique of a system, and a project analysis should not have to evaluate the institutional or sectoral context of the projectsuch an evaluation should already be in place before the individual project is analyzed.

When a system of water quality management is in place, the system itself should be the first focus of an economic analysis. If the system is economically justified, then any constraints imposed on an individual project can be taken as given. Depending on the nature of the constraints, economic analysis of an individual project could then focus only on whether the project meets the constraints at least cost. The economic analysis of the system need only be done once (until the system changes), and the analysis of every project that comes under that system can merely refer to the original sectoral or institutional analysis, without having to conduct a new analysis.

This paper has discussed one common way of managing surface waterthrough ambient standards or targetsand the economic analysis of both the system and an individual wastewater treatment project within that system. Public participation is perhaps the most important component of this kind of system of water quality management. If the ambient standards are set through a process that solicits, considers, and adapts to public preferences, then the water quality targets should be socially and economically justified by design. The targets may also be able to a pass a standard benefit-cost analysis, but that need not be the case, for benefit-cost analysis is, of course, not the only reasonable way to make social decisions.

Taking the water quality targets as given, economic analysis of a project would consider whether the proposed project is the least-cost means to achieve the standards. The simplest approach to achieving least-cost wastewater management is to build it into the design of the project. A project will provide sufficient incentives for least-cost wastewater management if it includes all nearby point sources, with all sources assessed a charge equal to the marginal cost of processing wastewater at the central treatment plant. A wastewater treatment project may achieve least-cost wastewater management without these design elements, but only at the cost of additional elements that are slightly more complicated.

This approach to designing and analyzing a wastewater treatment project is more than a mere theoretical possibility. The analysis of the system for managing water quality in the Hai River Basin, and the wastewater treatment plants that are part of that system, showed that the analysis is feasible, and comparable to the information and analytical requirements of standard benefit-cost


19

analysis. The analysis showed that both the system and the proposed treatment plants are sensibly designed, and roughly in accordance with economic principles.

The design and analysis of the Project could be improved in several ways, though. There was less public participation in setting the water quality targets than in best international practice. Taking the targets as given, though, the analysis of the targets would be stronger if there was more and better information on public perceptions of water quality and the government’s efforts to manage it.

The lack of a water quality model also is a limiting factor in the analysis. The system for managing water quality is still developing, and developing a water quality model is understandably not a high priority at this stage. In the absence of a model, though, the analysis would benefit substantially from observations of water quality above and below the proposed treatment plants.

Finally, the Project may achieve least-cost management of wastewater in the long run, but the initial tariff is not set at a level that will provide sufficient incentives for least-cost management of wastewater in the short run. This limitation could be addressed through a two-part tariff. If a two-part tariff is not feasible, then the extent to which the Project departs from least-cost management of wastewater could be gauged with the price elasticity of demand for discharging wastewater.


20

References Asian Development Bank, 1999. Final Report of TA No 3095-PRC: Hai River Basin Wastewater

Management and Pollution Control. Manila. , 2001. Final Report of ADB TA No 3488-PRC: Hebei Province Wastewater Management

Project. Manila. , 2001. Technical Assistance to the People’s Republic of China for Preparing the National

Guidelines for Urban Wastewater Tariffs, TAR: PRC 33456. Manila. Arrow, K. J., A. K. Sen, et al., eds., 2002. Handbook of Social Choice and Welfare Economics. Elsevier

Science. Clark, M., 2002. Personal communication. Enderlein, U. S., R. E. Enderlein, et al., 1997. “Water Quality Requirements.” In R. Helmer and I.

Hespanhol, Water Pollution Control. Thomson Science and Professional. Fraas, A. G., and V. G. Munley, 1984. “Municipal Wastewater Treatment Cost.” Journal of

Environmental Economics and Management 11(1):28-38. Hammond, P. J., 1993. “Interpersonal Comparisons of Utility: Why and How They Should be

Made.” In J. Elster and J. E. Roemer, Interpersonal Comparisons of Well-Being. Cambridge: Cambridge University Press.

Hanley, N., J. F. Shogren, et al., 1997. Environmental Economics in Theory and Practice. Oxford: Oxford University Press.

Helmer, R., and I. Hespanhol, eds., 1997. Water Pollution Control: A Guide to the Use of Water Quality Management Principles. Thomson Science and Professional.

Mitchell, B. M., and I. Vogelsang, 1991. Telecommunications Pricing: Theory and Practice. Cambridge: Cambridge University Press.

Ostrom, E., 1991. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press.

Sagoff, M., 2000. “Environmental Economics and the Conflation of Value and Benefit.” Environmental Science and Technology 34:1426-32.

State Environmental Protection Agency, 1998. Selected Standards of the People’s Republic of China (1979-1998). Beijing, People's Republic of China.

Stevenson, G. G., 1991. Common Property Economics: A General Theory and Land Use Applications. Cambridge: Cambridge University Press.

Train, K., 1994. Optimal Regulation: The Economic Theory of Natural Monopoly. MIT Press.


21

Appendix Let Q0 denote the “design capacity” of the plant. Suppose that the treatment plant can

process additional wastewater by expanding variable inputs at a constant rate, until inflow reaches ρQ0, where ρ > 1. Hence, the marginal cost of processing additional wastewater is constant until inflow exceeds ρQ0. Suppose that beyond ρQ0, marginal cost then increases at a constant rate. This pattern of marginal cost can be represented mathematically as

0

0

0,'( )

Q QC Q b a

Q Qρ

ρ≤

= + − (1)

where Q is the inflow of wastewater and a > 0 and b > 0.

Given the marginal cost function in expression Error! Reference source not found., the

total cost of processing wastewater is

02

0

0,( )

2 ( )

Q QaC Q c bQQ Q

ρρ

≤= + + −

(1)

where c is the plant’s fixed cost. Average cost is then

02

0

0,( ) / /

2 ( ) /

Q QaC Q Q c Q bQ Q Q

ρρ

≤= + + −

. (2)

Average cost is minimized where average and marginal cost are equal. Let *Q denote the

level of inflow where minimum average cost occurs. Since average cost is minimized only where marginal cost is increasing, *Q > ρQ0. Setting * * *'( ) ( ) /C Q C Q Q= gives

( )

( )

( )

( )

2 2* 0 * * 0

2 2* 0 * 0

2 2 2 2* 0 * * 0 * 0

2 2 2* 0

( )2

1 ( )21 ( 2 )2

2

aa Q Q Q c Q Q

a Q Q Q Q Q c

a Q Q Q Q Q Q Q c

a Q Q c

ρ ρ

ρ ρ

ρ ρ ρ

ρ

∗

− = + −

− − − =

− − − + =

− =

. (3)

Solving for a gives

2 2 2* 0 * 0 * 0

2 2( )( )

a c cQ Q Q Q Q Qρ ρ ρ

= =− − +

. (4)


22

Substituting a into expressions Error! Reference source not found. and (2) gives marginal cost and average cost as a function of *Q and Q0:

02 2 2

0* 0

0,2'( )Q Q

C Q b cQ QQ Q

ρρρ≤

= + −− (5)

and

02 2 2 2

* 0 0

0,1( ) / 1( )

Q QcC Q Q bQ Q Q Q Q

ρρ ρ

≤= + + − − . (6)

The difference between average cost and marginal cost is then

0 02 2 2 2 2 22

0* 0 * 00

02 2 2 2 2

* 0 0 0

02 2 2 2 2 2 2

* 0 0 0 0

( ) / '( )

0, 0,1 21( )

0,11( ) 2 2

0,11( 2 ) 2 2

1

C Q Q C QQ Q Q Qc c

Q QQ Q Q Q QQ Q

Q QcQ Q Q Q Q Q Q Q

Q QcQ Q Q Q Q Q Q Q Q Q

cQ

ρ ρρρ ρρ

ρρ ρ ρ

ρρ ρ ρ ρ

−

≤ ≤ = + − −− −−

≤= + − − − +

≤= + − + − − +

= 02 2 2 2 2 2

0 * 0

0,

( ) /( )

Q QQ Q Q Q

ρρ ρ

≤− − −

. (7)

23

PUBLICATIONS FROM THE ECONOMICS AND RESEARCH DEPARTMENT

ERD TECHNICAL NOTE SERIES (TNS) (Published in-house; Available through ADB Office of External Relations; Free of Charge) No. 1. Contingency Calculations for Environmental

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EDRC REPORT SERIES (ER)

No. 1 ASEAN and the Asian Development Bank —Seiji Naya, April 1982 No. 2 Development Issues for the Developing East and Southeast Asian Countries and International Cooperation —Seiji Naya and Graham Abbott, April 1982 No. 3 Aid, Savings, and Growth in the Asian Region —J. Malcolm Dowling and Ulrich Hiemenz, April 1982 No. 4 Development-oriented Foreign Investment and the Role of ADB —Kiyoshi Kojima, April 1982 No. 5 The Multilateral Development Banks and the International Economy’s Missing Public Sector —John Lewis, June 1982 No. 6 Notes on External Debt of DMCs —Evelyn Go, July 1982 No. 7 Grant Element in Bank Loans —Dal Hyun Kim, July 1982 No. 8 Shadow Exchange Rates and Standard Conversion Factors in Project Evaluation —Peter Warr, September 1982 No. 9 Small and Medium-Scale Manufacturing Establishments in ASEAN Countries: Perspectives and Policy Issues —Mathias Bruch and Ulrich Hiemenz, January 1983 No. 10 A Note on the Third Ministerial Meeting of GATT —Jungsoo Lee, January 1983 No. 11 Macroeconomic Forecasts for the Republic of China, Hong Kong, and Republic of Korea —J.M. Dowling, January 1983 No. 12 ASEAN: Economic Situation and Prospects —Seiji Naya, March 1983 No. 13 The Future Prospects for the Developing Countries of Asia —Seiji Naya, March 1983 No. 14 Energy and Structural Change in the Asia- Pacific Region, Summary of the Thirteenth Pacific Trade and Development Conference —Seiji Naya, March 1983 No. 15 A Survey of Empirical Studies on Demand for Electricity with Special Emphasis on Price Elasticity of Demand —Wisarn Pupphavesa, June 1983 No. 16 Determinants of Paddy Production in Indonesia: 1972-1981–A Simultaneous Equation Model Approach —T.K. Jayaraman, June 1983 No. 17 The Philippine Economy: Economic Forecasts for 1983 and 1984 —J.M. Dowling, E. Go, and C.N. Castillo, June 1983 No. 18 Economic Forecast for Indonesia —J.M. Dowling, H.Y. Kim, Y.K. Wang, and C.N. Castillo, June 1983 No. 19 Relative External Debt Situation of Asian Developing Countries: An Application of Ranking Method —Jungsoo Lee, June 1983 No. 20 New Evidence on Yields, Fertilizer Application, and Prices in Asian Rice Production —William James and Teresita Ramirez, July 1983 No. 21 Inflationary Effects of Exchange Rate

Changes in Nine Asian LDCs —Pradumna B. Rana and J. Malcolm Dowling, Jr., December 1983 No. 22 Effects of External Shocks on the Balance of Payments, Policy Responses, and Debt Problems of Asian Developing Countries —Seiji Naya, December 1983 No. 23 Changing Trade Patterns and Policy Issues: The Prospects for East and Southeast Asian Developing Countries —Seiji Naya and Ulrich Hiemenz, February 1984 No. 24 Small-Scale Industries in Asian Economic Development: Problems and Prospects —Seiji Naya, February 1984 No. 25 A Study on the External Debt Indicators Applying Logit Analysis —Jungsoo Lee and Clarita Barretto, February 1984 No. 26 Alternatives to Institutional Credit Programs in the Agricultural Sector of Low-Income Countries —Jennifer Sour, March 1984 No. 27 Economic Scene in Asia and Its Special Features —Kedar N. Kohli, November 1984 No. 28 The Effect of Terms of Trade Changes on the Balance of Payments and Real National Income of Asian Developing Countries —Jungsoo Lee and Lutgarda Labios, January 1985 No. 29 Cause and Effect in the World Sugar Market: Some Empirical Findings 1951-1982 —Yoshihiro Iwasaki, February 1985 No. 30 Sources of Balance of Payments Problem in the 1970s: The Asian Experience —Pradumna Rana, February 1985 No. 31 India’s Manufactured Exports: An Analysis of Supply Sectors —Ifzal Ali, February 1985 No. 32 Meeting Basic Human Needs in Asian Developing Countries —Jungsoo Lee and Emma Banaria, March 1985 No. 33 The Impact of Foreign Capital Inflow on Investment and Economic Growth in Developing Asia —Evelyn Go, May 1985 No. 34 The Climate for Energy Development in the Pacific and Asian Region: Priorities and Perspectives —V.V. Desai, April 1986 No. 35 Impact of Appreciation of the Yen on Developing Member Countries of the Bank —Jungsoo Lee, Pradumna Rana, and Ifzal Ali, May 1986 No. 36 Smuggling and Domestic Economic Policies in Developing Countries —A.H.M.N. Chowdhury, October 1986 No. 37 Public Investment Criteria: Economic Internal Rate of Return and Equalizing Discount Rate —Ifzal Ali, November 1986 No. 38 Review of the Theory of Neoclassical Political Economy: An Application to Trade Policies —M.G. Quibria, December 1986 No. 39 Factors Influencing the Choice of Location: Local and Foreign Firms in the Philippines —E.M. Pernia and A.N. Herrin, February 1987 No. 40 A Demographic Perspective on Developing Asia and Its Relevance to the Bank

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—E.M. Pernia, May 1987 No. 41 Emerging Issues in Asia and Social Cost Benefit Analysis —I. Ali, September 1988 No. 42 Shifting Revealed Comparative Advantage: Experiences of Asian and Pacific Developing Countries —P.B. Rana, November 1988 No. 43 Agricultural Price Policy in Asia: Issues and Areas of Reforms —I. Ali, November 1988 No. 44 Service Trade and Asian Developing Economies —M.G. Quibria, October 1989 No. 45 A Review of the Economic Analysis of Power Projects in Asia and Identification of Areas of Improvement —I. Ali, November 1989 No. 46 Growth Perspective and Challenges for Asia: Areas for Policy Review and Research —I. Ali, November 1989 No. 47 An Approach to Estimating the Poverty Alleviation Impact of an Agricultural Project —I. Ali, January 1990 No. 48 Economic Growth Performance of Indonesia, the Philippines, and Thailand: The Human Resource Dimension —E.M. Pernia, January 1990 No. 49 Foreign Exchange and Fiscal Impact of a Project: A Methodological Framework for Estimation —I. Ali, February 1990 No. 50 Public Investment Criteria: Financial and Economic Internal Rates of Return —I. Ali, April 1990 No. 51 Evaluation of Water Supply Projects: An Economic Framework —Arlene M. Tadle, June 1990 No. 52 Interrelationship Between Shadow Prices, Project Investment, and Policy Reforms: An Analytical Framework —I. Ali, November 1990 No. 53 Issues in Assessing the Impact of Project and Sector Adjustment Lending —I. Ali, December 1990 No. 54 Some Aspects of Urbanization and the Environment in Southeast Asia —Ernesto M. Pernia, January 1991

No. 55 Financial Sector and Economic Development: A Survey —Jungsoo Lee, September 1991 No. 56 A Framework for Justifying Bank-Assisted Education Projects in Asia: A Review of the Socioeconomic Analysis and Identification of Areas of Improvement —Etienne Van De Walle, February 1992 No. 57 Medium-term Growth-Stabilization Relationship in Asian Developing Countries and Some Policy Considerations —Yun-Hwan Kim, February 1993 No. 58 Urbanization, Population Distribution, and Economic Development in Asia —Ernesto M. Pernia, February 1993 No. 59 The Need for Fiscal Consolidation in Nepal: The Results of a Simulation —Filippo di Mauro and Ronald Antonio Butiong, July 1993 No. 60 A Computable General Equilibrium Model of Nepal —Timothy Buehrer and Filippo di Mauro, October 1993 No. 61 The Role of Government in Export Expansion in the Republic of Korea: A Revisit —Yun-Hwan Kim, February 1994 No. 62 Rural Reforms, Structural Change, and Agricultural Growth in the People’s Republic of China —Bo Lin, August 1994 No. 63 Incentives and Regulation for Pollution Abatement with an Application to Waste Water Treatment —Sudipto Mundle, U. Shankar, and Shekhar Mehta, October 1995 No. 64 Saving Transitions in Southeast Asia —Frank Harrigan, February 1996 No. 65 Total Factor Productivity Growth in East Asia: A Critical Survey —Jesus Felipe, September 1997 No. 66 Foreign Direct Investment in Pakistan: Policy Issues and Operational Implications —Ashfaque H. Khan and Yun-Hwan Kim, July 1999 No. 67 Fiscal Policy, Income Distribution and Growth —Sailesh K. Jha, November 1999

ECONOMIC STAFF PAPERS (ES) No. 1 International Reserves: Factors Determining Needs and Adequacy —Evelyn Go, May 1981 No. 2 Domestic Savings in Selected Developing Asian Countries —Basil Moore, assisted by A.H.M. Nuruddin Chowdhury, September 1981 No. 3 Changes in Consumption, Imports and Exports of Oil Since 1973: A Preliminary Survey of the Developing Member Countries of the Asian Development Bank —Dal Hyun Kim and Graham Abbott, September 1981 No. 4 By-Passed Areas, Regional Inequalities, and Development Policies in Selected Southeast Asian Countries —William James, October 1981 No. 5 Asian Agriculture and Economic Development —William James, March 1982 No. 6 Inflation in Developing Member Countries:

An Analysis of Recent Trends —A.H.M. Nuruddin Chowdhury and J. Malcolm Dowling, March 1982 No. 7 Industrial Growth and Employment in Developing Asian Countries: Issues and Perspectives for the Coming Decade —Ulrich Hiemenz, March 1982 No. 8 Petrodollar Recycling 1973-1980. Part 1: Regional Adjustments and the World Economy —Burnham Campbell, April 1982 No. 9 Developing Asia: The Importance of Domestic Policies —Economics Office Staff under the direction of Seiji Naya, May 1982 No. 10 Financial Development and Household Savings: Issues in Domestic Resource Mobilization in Asian Developing Countries —Wan-Soon Kim, July 1982 No. 11 Industrial Development: Role of Specialized

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Financial Institutions —Kedar N. Kohli, August 1982 No. 12 Petrodollar Recycling 1973-1980. Part II: Debt Problems and an Evaluation of Suggested Remedies —Burnham Campbell, September 1982 No. 13 Credit Rationing, Rural Savings, and Financial Policy in Developing Countries —William James, September 1982 No. 14 Small and Medium-Scale Manufacturing Establishments in ASEAN Countries: Perspectives and Policy Issues —Mathias Bruch and Ulrich Hiemenz, March 1983 No. 15 Income Distribution and Economic Growth in Developing Asian Countries —J. Malcolm Dowling and David Soo, March 1983 No. 16 Long-Run Debt-Servicing Capacity of Asian Developing Countries: An Application of Critical Interest Rate Approach —Jungsoo Lee, June 1983 No. 17 External Shocks, Energy Policy, and Macroeconomic Performance of Asian Developing Countries: A Policy Analysis —William James, July 1983 No. 18 The Impact of the Current Exchange Rate System on Trade and Inflation of Selected Developing Member Countries —Pradumna Rana, September 1983 No. 19 Asian Agriculture in Transition: Key Policy Issues —William James, September 1983 No. 20 The Transition to an Industrial Economy in Monsoon Asia —Harry T. Oshima, October 1983 No. 21 The Significance of Off-Farm Employment and Incomes in Post-War East Asian Growth —Harry T. Oshima, January 1984 No. 22 Income Distribution and Poverty in Selected Asian Countries —John Malcolm Dowling, Jr., November 1984 No. 23 ASEAN Economies and ASEAN Economic Cooperation —Narongchai Akrasanee, November 1984 No. 24 Economic Analysis of Power Projects —Nitin Desai, January 1985 No. 25 Exports and Economic Growth in the Asian Region —Pradumna Rana, February 1985 No. 26 Patterns of External Financing of DMCs —E. Go, May 1985 No. 27 Industrial Technology Development the Republic of Korea —S.Y. Lo, July 1985 No. 28 Risk Analysis and Project Selection: A Review of Practical Issues —J.K. Johnson, August 1985 No. 29 Rice in Indonesia: Price Policy and Comparative Advantage —I. Ali, January 1986 No. 30 Effects of Foreign Capital Inflows on Developing Countries of Asia —Jungsoo Lee, Pradumna B. Rana, and Yoshihiro Iwasaki, April 1986 No. 31 Economic Analysis of the Environmental Impacts of Development Projects —John A. Dixon et al., EAPI, East-West Center, August 1986 No. 32 Science and Technology for Development: Role of the Bank —Kedar N. Kohli and Ifzal Ali, November 1986 No. 33 Satellite Remote Sensing in the Asian and Pacific Region —Mohan Sundara Rajan, December 1986 No. 34 Changes in the Export Patterns of Asian and

Pacific Developing Countries: An Empirical Overview —Pradumna B. Rana, January 1987 No. 35 Agricultural Price Policy in Nepal —Gerald C. Nelson, March 1987 No. 36 Implications of Falling Primary Commodity Prices for Agricultural Strategy in the Philippines —Ifzal Ali, September 1987 No. 37 Determining Irrigation Charges: A Framework —Prabhakar B. Ghate, October 1987 No. 38 The Role of Fertilizer Subsidies in Agricultural Production: A Review of Select Issues —M.G. Quibria, October 1987 No. 39 Domestic Adjustment to External Shocks in Developing Asia —Jungsoo Lee, October 1987 No. 40 Improving Domestic Resource Mobilization through Financial Development: Indonesia —Philip Erquiaga, November 1987 No. 41 Recent Trends and Issues on Foreign Direct Investment in Asian and Pacific Developing Countries —P.B. Rana, March 1988 No. 42 Manufactured Exports from the Philippines: A Sector Profile and an Agenda for Reform —I. Ali, September 1988 No. 43 A Framework for Evaluating the Economic Benefits of Power Projects —I. Ali, August 1989 No. 44 Promotion of Manufactured Exports in Pakistan —Jungsoo Lee and Yoshihiro Iwasaki, September 1989 No. 45 Education and Labor Markets in Indonesia: A Sector Survey —Ernesto M. Pernia and David N. Wilson, September 1989 No. 46 Industrial Technology Capabilities and Policies in Selected ADCs —Hiroshi Kakazu, June 1990 No. 47 Designing Strategies and Policies for Managing Structural Change in Asia —Ifzal Ali, June 1990 No. 48 The Completion of the Single European Community Market in 1992: A Tentative Assessment of its Impact on Asian Developing Countries —J.P. Verbiest and Min Tang, June 1991 No. 49 Economic Analysis of Investment in Power Systems —Ifzal Ali, June 1991 No. 50 External Finance and the Role of Multilateral Financial Institutions in South Asia: Changing Patterns, Prospects, and Challenges —Jungsoo Lee, November 1991 No. 51 The Gender and Poverty Nexus: Issues and Policies —M.G. Quibria, November 1993 No. 52 The Role of the State in Economic Development: Theory, the East Asian Experience, and the Malaysian Case —Jason Brown, December 1993 No. 53 The Economic Benefits of Potable Water Supply Projects to Households in Developing Countries —Dale Whittington and Venkateswarlu Swarna, January 1994 No. 54 Growth Triangles: Conceptual Issues and Operational Problems —Min Tang and Myo Thant, February 1994 No. 55 The Emerging Global Trading Environment and Developing Asia —Arvind Panagariya, M.G. Quibria, and Narhari Rao, July 1996 No. 56 Aspects of Urban Water and Sanitation in the Context of Rapid Urbanization in Developing Asia

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—Ernesto M. Pernia and Stella LF. Alabastro, September 1997 No. 57 Challenges for Asia’s Trade and Environment —Douglas H. Brooks, January 1998 No. 58 Economic Analysis of Health Sector Projects- A Review of Issues, Methods, and Approaches —Ramesh Adhikari, Paul Gertler, and

Anneli Lagman, March 1999 No. 59 The Asian Crisis: An Alternate View —Rajiv Kumar and Bibek Debroy, July 1999 No. 60 Social Consequences of the Financial Crisis in Asia —James C. Knowles, Ernesto M. Pernia, and Mary Racelis, November 1999

OCCASIONAL PAPERS (OP) No. 1 Poverty in the People’s Republic of China: Recent Developments and Scope for Bank Assistance —K.H. Moinuddin, November 1992 No. 2 The Eastern Islands of Indonesia: An Overview of Development Needs and Potential —Brien K. Parkinson, January 1993 No. 3 Rural Institutional Finance in Bangladesh and Nepal: Review and Agenda for Reforms —A.H.M.N. Chowdhury and Marcelia C. Garcia, November 1993 No. 4 Fiscal Deficits and Current Account Imbalances of the South Pacific Countries: A Case Study of Vanuatu —T.K. Jayaraman, December 1993 No. 5 Reforms in the Transitional Economies of Asia —Pradumna B. Rana, December 1993 No. 6 Environmental Challenges in the People’s Republic of China and Scope for Bank Assistance —Elisabetta Capannelli and Omkar L. Shrestha, December 1993 No. 7 Sustainable Development Environment and Poverty Nexus —K.F. Jalal, December 1993 No. 8 Intermediate Services and Economic Development: The Malaysian Example —Sutanu Behuria and Rahul Khullar, May 1994 No. 9 Interest Rate Deregulation: A Brief Survey of the Policy Issues and the Asian Experience —Carlos J. Glower, July 1994 No. 10 Some Aspects of Land Administration in Indonesia: Implications for Bank Operations —Sutanu Behuria, July 1994 No. 11 Demographic and Socioeconomic Determinants of Contraceptive Use among Urban Women in the Melanesian Countries in the South Pacific: A Case Study of Port Vila Town in Vanuatu —T.K. Jayaraman, February 1995

No. 12 Managing Development through Institution Building — Hilton L. Root, October 1995 No. 13 Growth, Structural Change, and Optimal Poverty Interventions —Shiladitya Chatterjee, November 1995 No. 14 Private Investment and Macroeconomic Environment in the South Pacific Island Countries: A Cross-Country Analysis —T.K. Jayaraman, October 1996 No. 15 The Rural-Urban Transition in Viet Nam: Some Selected Issues —Sudipto Mundle and Brian Van Arkadie, October 1997 No. 16 A New Approach to Setting the Future Transport Agenda —Roger Allport, Geoff Key, and Charles Melhuish June 1998 No. 17 Adjustment and Distribution: The Indian Experience —Sudipto Mundle and V.B. Tulasidhar, June 1998 No. 18 Tax Reforms in Viet Nam: A Selective Analysis —Sudipto Mundle, December 1998 No. 19 Surges and Volatility of Private Capital Flows to Asian Developing Countries: Implications for Multilateral Development Banks —Pradumna B. Rana, December 1998 No. 20 The Millennium Round and the Asian Economies: An Introduction —Dilip K. Das, October 1999 No. 21 Occupational Segregation and the Gender Earnings Gap —Joseph E. Zveglich, Jr. and Yana van der Meulen

Rodgers, December 1999 No. 22 Information Technology: Next Locomotive of

Growth? —Dilip K. Das, June 2000

STATISTICAL REPORT SERIES (SR) No. 1 Estimates of the Total External Debt of the Developing Member Countries of ADB: 1981-1983 —I.P. David, September 1984 No. 2 Multivariate Statistical and Graphical Classification Techniques Applied to the Problem of Grouping Countries —I.P. David and D.S. Maligalig, March 1985 No. 3 Gross National Product (GNP) Measurement Issues in South Pacific Developing Member Countries of ADB —S.G. Tiwari, September 1985 No. 4 Estimates of Comparable Savings in Selected DMCs —Hananto Sigit, December 1985

No. 5 Keeping Sample Survey Design and Analysis Simple —I.P. David, December 1985 No. 6 External Debt Situation in Asian Developing Countries —I.P. David and Jungsoo Lee, March 1986 No. 7 Study of GNP Measurement Issues in the South Pacific Developing Member Countries. Part I: Existing National Accounts of SPDMCs–Analysis of Methodology and Application of SNA Concepts —P. Hodgkinson, October 1986 No. 8 Study of GNP Measurement Issues in the South Pacific Developing Member Countries. Part II: Factors Affecting Intercountry

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Comparability of Per Capita GNP —P. Hodgkinson, October 1986 No. 9 Survey of the External Debt Situation in Asian Developing Countries, 1985 —Jungsoo Lee and I.P. David, April 1987 No. 10 A Survey of the External Debt Situation in Asian Developing Countries, 1986 —Jungsoo Lee and I.P. David, April 1988 No. 11 Changing Pattern of Financial Flows to Asian and Pacific Developing Countries —Jungsoo Lee and I.P. David, March 1989 No. 12 The State of Agricultural Statistics in Southeast Asia —I.P. David, March 1989 No. 13 A Survey of the External Debt Situation in Asian and Pacific Developing Countries: 1987-1988 —Jungsoo Lee and I.P. David, July 1989

No. 14 A Survey of the External Debt Situation in Asian and Pacific Developing Countries: 1988-1989 —Jungsoo Lee, May 1990 No. 15 A Survey of the External Debt Situation in Asian and Pacific Developing Countrie s: 1989-1992 —Min Tang, June 1991 No. 16 Recent Trends and Prospects of External Debt Situation and Financial Flows to Asian and Pacific Developing Countries —Min Tang and Aludia Pardo, June 1992 No. 17 Purchasing Power Parity in Asian Developing Countries: A Co-Integration Test —Min Tang and Ronald Q. Butiong, April 1994 No. 18 Capital Flows to Asian and Pacific Developing Countries: Recent Trends and Future Prospects —Min Tang and James Villafuerte, October 1995

SPECIAL STUDIES, COMPLIMENTARY (SSC) (Published in-house; Available through ADB Office of External Relations; Free of Charge) 1. Improving Domestic Resource Mobilization Through

Financial Development: Overview September 1985 2. Improving Domestic Resource Mobilization Through

Financial Development: Bangladesh July 1986 3. Improving Domestic Resource Mobilization Through

Financial Development: Sri Lanka April 1987 4. Improving Domestic Resource Mobilization Through

Financial Development: India December 1987 5. Financing Public Sector Development Expenditure in Selected Countries: Overview January 1988 6. Study of Selected Industries: A Brief Report

April 1988 7. Financing Public Sector Development Expenditure in Selected Countries: Bangladesh June 1988 8. Financing Public Sector Development Expenditure in Selected Countries: India June 1988 9. Financing Public Sector Development Expenditure in Selected Countries: Indonesia June 1988 10. Financing Public Sector Development Expenditure in Selected Countries: Nepal June 1988 11. Financing Public Sector Development Expenditure in Selected Countries: Pakistan June 1988 12. Financing Public Sector Development Expenditure in Selected Countries: Philippines June 1988 13. Financing Public Sector Development Expenditure in Selected Countries: Thailand June 1988 14. Towards Regional Cooperation in South Asia:

ADB/EWC Symposium on Regional Cooperation in South Asia February 1988 15. Evaluating Rice Market Intervention Policies: Some Asian Examples April 1988 16. Improving Domestic Resource Mobilization Through

Financial Development: Nepal November 1988 17. Foreign Trade Barriers and Export Growth September 1988

18. The Role of Small and Medium-Scale Industries in the Industrial Development of the Philippines April 1989

19. The Role of Small and Medium-Scale Manufacturing Industries in Industrial Development: The Experience of

Selected Asian Countries January 1990

20. National Accounts of Vanuatu, 1983-1987 January 1990

21. National Accounts of Western Samoa, 1984-1986 February 1990 22. Human Resource Policy and Economic

Development: Selected Country Studies July 1990

23. Export Finance: Some Asian Examples September 1990

24. National Accounts of the Cook Islands, 1982-1986 September 1990 25. Framework for the Economic and Financial Appraisal of

Urban Development Sector Projects January 1994 26. Framework and Criteria for the Appraisal

and Socioeconomic Justification of Education Projects January 1994

27. Guidelines for the Economic Analysis of Projects February 1997

28. Investing in Asia 1997 29. Guidelines for the Economic Analysis of Telecommunication Projects 1998 30. Guidelines for the Economic Analysis of Water Supply Projects 1999

SPECIAL STUDIES, ADB (SS, ADB) (Published in-house; Available commercially through ADB Office of External Relations) 1. Rural Poverty in Developing Asia

Edited by M.G. Quibria Vol. 1: Bangladesh, India, and Sri Lanka, 1994

$35.00 (paperback)

Vol. 2: Indonesia, Republic of Korea, Philippines, and Thailand, 1996

$35.00 (paperback)

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2. External Shocks and Policy Adjustments: Lessons from the Gulf Crisis

Edited by Naved Hamid and Shahid N. Zahid, 1995 $15.00 (paperback)

3. Gender Indicators of Developing Asian and Pacific Countries

Asian Development Bank, 1993 $25.00 (paperback) 4. Urban Poverty in Asia: A Survey of Critical Issues Edited by Ernesto Pernia, 1994 $20.00 (paperback) 5. Indonesia-Malaysia-Thailand Growth Triangle:

Theory to Practice Edited by Myo Thant and Min Tang, 1996

$15.00 (paperback) 6. Emerging Asia: Changes and Challenges Asian Development Bank, 1997 $30.00 (paperback) 7. Asian Exports Edited by Dilip Das, 1999 $35.00 (paperback) $55.00 (hardbound) 8. Mortgage-Backed Securities Markets in Asia Edited by S.Ghon Rhee & Yutaka Shimomoto, 1999 $35.00 (paperback) 9. Corporate Governance and Finance in East Asia:

A Study of Indonesia, Republic of Korea, Malaysia, Philippines and Thailand J. Zhuang, David Edwards, D. Webb, & Ma. Virginita Capulong Vol. 1, 2000 $10.00 (paperback) Vol. 2, 2001 $15.00 (paperback) 10. Financial Management and Governance Issues Asian Development Bank, 2000 Cambodia $10.00 (paperback) People’s Republic of China $10.00 (paperback) Mongolia $10.00 (paperback) Pakistan $10.00 (paperback) Papua New Guinea $10.00 (paperback) Uzbekistan $10.00 (paperback) Viet Nam $10.00 (paperback) Selected Developing Member Countries $10.00 (paperback) 11. Guidelines for the Economic Analysis of Projects Asian Development Bank, 1997 $10.00 (paperback) 12. Handbook for the Economic Analysis of Water Supply Projects Asian Development Bank, 1999 $15.00 (hardbound) 13. Handbook for the Economic Analysis of Health Sector Projects Asian Development Bank, 2000 $10.00 (paperback)

SPECIAL STUDIES, OUP (SS,OUP) (Co-published with Oxford University Press; Available commercially through Oxford University Press Offices, Associated Companies, and Agents) 1. Informal Finance: Some Findings from Asia Prabhu Ghate et. al., 1992 $15.00 (paperback) 2. Mongolia: A Centrally Planned Economy in Transition Asian Development Bank, 1992 $15.00 (paperback) 3. Rural Poverty in Asia, Priority Issues and Policy Options Edited by M.G. Quibria, 1994

$25.00 (paperback) 4. Growth Triangles in Asia: A New Approach to Regional Economic Cooperation Edited by Myo Thant, Min Tang, and Hiroshi Kakazu 1st ed., 1994 $36.00 (hardbound) Revised ed., 1998 $55.00 (hardbound) 5. Urban Poverty in Asia: A Survey of Critical Issues Edited by Ernesto Pernia, 1994 $18.00 (paperback) 6. Critical Issues in Asian Development: Theories, Experiences, and Policies Edited by M.G. Quibria, 1995 $15.00 (paperback) $36.00 (hardbound) 7. From Centrally Planned to Market Economies:

The Asian Approach Edited by Pradumna B. Rana and Naved Hamid, 1995 Vol. 1: Overview $36.00 (hardbound) Vol. 2: People’s Republic of China and Mongolia $50.00 (hardbound) Vol. 3: Lao PDR, Myanmar, and Viet Nam $50.00 (hardbound) 8. Financial Sector Development in Asia

Edited by Shahid N. Zahid, 1995 $50.00 (hardbound) 9. Financial Sector Development in Asia: Country Studies

Edited by Shahid N. Zahid, 1995

$55.00 (hardbound) 10. Fiscal Management and Economic Reform in the People’s Republic of China Christine P.W. Wong, Christopher Heady,

and Wing T. Woo, 1995 $15.00 (paperback)

11. Current Issues in Economic Development: An Asian Perspective Edited by M.G. Quibria and J. Malcolm Dowling, 1996

$50.00 (hardbound) 12. The Bangladesh Economy in Transition Edited by M.G. Quibria, 1997 $20.00 (hardbound) 13. The Global Trading System and Developing Asia Edited by Arvind Panagariya, M.G. Quibria,

and Narhari Rao, 1997 $55.00 (hardbound)

14. Rising to the Challenge in Asia: A Study of Financial Markets

Asian Development Bank, 1999 Vol. 1 $20.00 (paperback) Vol. 2 $15.00 (paperback) Vol. 3 $25.00 (paperback) Vols. 4-12 $20.00 (paperback)

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SERIALS (Co-published with Oxford University Press; Available commercially through Oxford University Press Offices, Associated Companies, and Agents) 1. Asian Development Outlook (ADO; annual) $36.00 (paperback) 2. Key Indicators of Developing Asian and Pacific Countries (KI; annual) $35.00 (paperback) JOURNAL (Published in-house; Available commercially through ADB Office of External Relations) 1. Asian Development Review (ADR; semiannual)

$5.00 per issue; $8.00 per year (2 issues) Subsequent in line incumbent

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