How would you define "economic viability". Is there any agreeable
definition amongst economists? What would be the criteria for
determining if something is economically viable or not. Please cite
sources. This is for a thesis, where I am studying the viability of
alternative technologies to patented inventions. I have sought to
analyse this viability under three heads ('legal, technical and
economic). My aim is to
demonstrate that there is no agreed definition of 'economic viability'-
hence estimating whether or not an alternative technology (to the
patented invention) is economically viable or not is very difficult.
It is far less objective than say 'legal viability'-which I could do
by evaluating as to whether the alternative technology is covered by
the patent in question or not. If it is, then it is clearly not
legally viable, as creating and selling this technology would infringe
the patent. If it is not covered the patent, then it is 'legally
viable". Similarly, with 'technical viability' as well, I could boil
down the question to "is the proposed alternative to the patented
invention technically possible and will it yield the same results as
the patented invention".
Please cite sources while answering-as the answer appears to be
intuitive-it is sources (and credible ones..) that I need to back me
up. Thank you very much. Shamnad |
Request for Question Clarification by
pafalafa-ga
on
19 Dec 2004 13:13 PST
The Asian Devleopment Bank defines economic viability like this:
-----
Economic viability. The assessment that increases in output produced
by a project using the least cost method will recover costs, provide
an additional required rate of return, and sustain effective
production in the face of uncertainty and risk.
-----
This seems straightforward enough...the economic viability of
something simply means that a project (be it a new technology, a new
toothpaste flavor, or anything else) can be expected to pay for itself
and then some, with a reasonable rate of return.
However, defining "economic viability" does not give one the power to
see the future. One can look back at the history of a project and be
reasonably certain that they can tell if it was economically viable or
not. But trying to predict such viability ahead of time is mere guess
work....educated guessing, to be sure, but guesswork just the same.
If you can tell us a bit more about what you're after perhaps we'll be
able to offer some effective resources for you.
Thanks.
pafalafa-ga
|
Clarification of Question by
shamnadmb-ga
on
20 Dec 2004 01:32 PST
Thank you very much for coming back so quickly on this. I reall
appreciate your succinct response. I visited the ADB website but didnt
find this definition that you cite-could you point me to where this is
published. To clarify my question further:
As I'd stated in my question, my attempt is to demonstrate that
compared to 'legal' and 'technical' viability, parameters for
determining 'economic viability' are far less objective. You have
pointed to an ADB definition and rightly stated that as regards the
'future' one can only do guesswork. I guess the 'future' element in
'economic viability' is the main factor stunting an objective
analysis, when compared to 'technical' or 'legal'. To how many years
in the future would I have to look before I conclude that a project is
economically viable and would deliver good rates of return for that
many number of years. We dont need to delve into the future with the
other factors-as the only issue is 'is it legally viable' today or 'is
it technically viable' today. When defining the term 'economic
viability' therefore, I guess I am looking for something comparative
(to demonstrate its lack of objectivity)
Similarly, I'm not sure whether 'financial viability' is the same as
'economic viability'-is it a sub part of 'economic viability'. what
would be the parameters for determining 'financial viability'.
Also, I find that very often 'technical viability' is conflated with
'economic viability'. I find the ADB website refers to both technical
viability and economic viability. Am I right in assuming that both are
distinct and that 'technical' is a little more objectively
determinable than 'economic viability'.
Also I found another definition by DN Mavris, GC Mantis MR Kirby
?Demonstration of a Probabilistic Technique for the Determination of
Aircraft Economic Viability?
http://www.asdl.gatech.edu/publications/pdf/1997/AIAA-97-5585.pdf
"Economic viability is a measure of the systems ability to
achieve specified cost and profitability goals as well as satisfy
any constraints imposed"
What are the 'constraints imposed' that they refer to in this
definition. How is this different from the one by ADB. I also found
the term 'viability assumption' used by JY Lin ?Viability, Economic
Transition and Reflections on Neo-classical Economics?
<http://emlab.berkeley.edu/users/webfac/bardhan/e271_sp03/lin.pdf>.
Prof Lin states:
?I define the term viability with respect to the expected rate of
profit of a firm in an open, free, and competitive market. If, without
any external subsidies or protections, a normally managed firm is
expected to earn a socially acceptable normal profit in a free, open,
and competitive market, than that firm is viable'.
How is this again different from the other definitions-what is a
socially acceptable normal profit-doesnt this lack objectivity? Do you
have any other definition or article that lists out the various
parameters one uses to calcuate economic feasibility (also is
'economic viability the same as economic feasibility?). In short, if
you give me some material (with sources)to show that we dont have
objective indicators for determining economic viability (in much the
same way as we do have for legal or technical viability), I would be
very grateful.
Thank you very much. I really appreciate your help.
|
Clarification of Question by
shamnadmb-ga
on
20 Dec 2004 08:51 PST
I'm adding some more thoughts to my previous clarification. This is a
response I received from a colleague. I think his response illustrates
the lack of consensus in terms of parameters used for measuring
economic viability:
Regarding your query on how best to define or determine 'economic
viability', the answer is, "it depends". There is a general agreement
that economic viability means profitability.
The ambiguity comes in the definition of profitability. The key
factors (or assumptions) that drive this are:
1. Is it short term versus long term?
2. Does it consider competitive actions or not?
3. The extent to which the sales model is good enough for prediction?
4. Do we have a good estimate for the costs?
Given a set of assumptions for the above four questions, one can then
provide an analysis of the economic viability of a product or
technology.
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