The Policy Analysis Matrix In Zimbabwe : A Methodological Introduction

This paper discusses the methodology behind the policy analysis matrix (PAM), an approach to the study of incentives and incomes in alternative production activities. The PAM method uses average-cost budgets to list the costs and benefits of each activity, initially at market prices in terms of private income, and then at opportunity cost in terms of national income. The market-price budget shows the private profitability of the activity, while the opportunity-cost-budget shows its contribution to the economy as a whole, indicating the degree of economic efficiency and comparative advantage enjoyed by the activity. Such data are needed for project appraisals, and for guarding public sector investments towards more productive activities.

AEE Working Paper.