Abstract
<jats:p>Evaluating the social profitability of a feeder road involves not only estimating its construction costs and what changes it would induce in the villages served, but also valuing them correctly. The latter requires the use of shadow prices instead of market prices at certain stages of the analysis, while respecting the fact that households' welfare depends on income at market prices. Using as an example a World Bank loan to finance a tranche of India's Pradhan Mantri Gram Sadak Yojana (PMGSY) programme, the paper estimates: first, the flow of benefits a representative feeder must generate to break even; second, the flow arising from improvements in the village's terms of trade, as yielded by a calibrated model of the village embodied in the larger economy; and third, a measure of benefits in the domains of education and health, based on related survey data for villages in Orissa. The chief finding is that connecting a village of 250 households (PMGSY's eligibility threshold) would be just profitable if labour mobility takes the form of migration, but clearly unprofitable under commuting.</jats:p>