EXAMINING A SOCIAL COST-BENEFIT ANALYSIS OF THE PANAMA CANAL EXPANSION PROJECT

Abstract

Upon completing the construction of the Panama Canal in 1914, vessels sailing between the Atlantic and Pacific Oceans were provided an alternative to navigating the southern tip of South America. In order to accommodate future demand of Canal services, the Panama Canal Authority (ACP) in 2006 began planning a Canal expansion. The ACP enlisted URS Holdings, Inc to do a social cost-benefit analysis of the project. This thesis thoroughly examines the contents of this analysis and critiques the content and methodology of the study. The URS analysis suffers from numerous problems, including a lack of monetary values for potentially significant social and environmental impacts of the Canal expansion, a failure to distinguish pecuniary versus non-pecuniary externalities, causing the social benefits of the expansion to be grossly overstated and a questionable choice of discount rate which make a more positive picture of the private returns from expanding the Canal.