EC238 Lecture Notes - Lecture 16: Weighted Arithmetic Mean, Real Interest Rate, Social Discount Rate
Document Summary
Public agencies only use benefit-cost analysis in ways that would help them justify ever larger budgets. Benefit-cost analysis is really an attempt to short-circuit the process of political discussion and decision that should take place around prospective public projects and programs. Benefit-cost analysis is a way of curtailing public programs because of the difficulty of measuring benefits relative to costs. Basic benefit-cost analysis framework: specify clearly the project or program, including its scale and th perspective of the study. Socially efficient scale maximizes the net social benefits from the project. Net social benefits are maximized where mac = md. Net benefits = a+d: describe quantitatively the inputs and outputs of the program. Prediction regarding values of input and output per year are sometimes required: estimate the social costs and benefits of these inputs and outputs, compare these benefits and costs. Compute the net benefits (nb) of the project: net benefits are the difference between total benefit sand total costs.
