Institutional Safeguards for Cost Benefit Analysis: Lessons from the Chilean National Investment System

Abstract

This paper discusses some institutional and procedural designs that can strengthen CBA as a decision making tool within the public sector. Our discussion is based on Chile’s National Public Investment System (SNI) the earliest and most consolidated investment appraisal system in Latin America. The objective of Chile’s SNI is to provide a coherent framework for identifying, coordinating, evaluating and implementing public investments. Chile’s SNI has several interesting institutional characteristics. For example, it standardizes project presentation formats, establishes explicit application and evaluation processes for public funds, provides general as well as sector specific methodological guidelines for CBA of projects and programs, and introduces a system of “checks and balances” by separating the institution that evaluates projects from the institutions promoting projects. Besides describing the system and highlighting the features we believe strengthen the use of project appraisal as a decision making tool. The paper also presents data on the number of projects appraised by sector, the overall results of appraisals and other administrative data, as well as a summary of ex-post studies for a sample of road, rural electricity, education and health projects. Unfortunately, the limited data available and the lack of a proper counterfactual scenario do not allow for strong conclusions to be made regarding the performance of the system. However, the data presented serves as an illustration of the Chilean system and it may be of value to researches in this field as well as to policymakers in other countries wishing to improve their public investment systems.