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- Title
BENEFIT-COST ANALYSIS IN STATE AND LOCAL INVESTMENT DECISIONS.
- Authors
David, Elizabeth
- Abstract
The use of benefit-cost analysis for state and local investment decisions is likely to differ from that of the federal government. Some of these differences occur because of the basic assumptions of benefit-cost analysis that local factor prices will reflect relative scarcities, and that implementation of the project will not affect relative prices. Both of these are frequently untrue of state and local investments and will thus distort the results of the benefit cost analysis. Other differences stem from the size of the jurisdiction. The benefits or costs of federal investments are seldom felt beyond the federal jurisdiction but this is unlikely to be the case for state and local expenditures. These spillovers are likely to be ignored in benefit-cost analysis and affect the results. The general need for more detailed information at the state and local levels substantially increases the costs of the analysis. Although state and local governments are frequently criticized for conducting slipshod analysis, the small size of their investments warrants a proportionally small expenditure on the benefit-cost analysis. It is, therefore, not surprising that the benefit-cost analysis conducted by state and local governments may not as accurately assess the likely benefits and costs of an investment. In part this is because the assumptions on which benefit-cost analysis is based do not hold; in part it is because it is more expensive to obtain the inputs needed in the analysis, and in part it is because less should be spent on the analysis following the appropriate strategy of tailoring the amount spent on the analysis to the size of the contemplated investment. At the beginning of the paper the question was raised as to whether or not benefit-cost analysis would improve state and local investment decision-making. The chief benefits from using benefit-cost analysis are to point up the information gaps and to call into question the underlying criteria for the definition of the "need" for the investment. A further advantage is to ensure uniformity in measuring the benefits of all of the projects considered in the investment package. In all, although benefit-cost analysis is undoubtedly more difficult and expensive for state and local governments there are no inherent reasons why its proper use should not improve the investment decisions of all levels of government.
- Subjects
COST effectiveness; INVESTMENT analysis; LOCAL government; FEDERAL government; PUBLIC investments; ECONOMIC demand; PUBLIC spending; STATE governments
- Publication
Public Administration Review, 1979, Vol 39, Issue 1
- ISSN
0033-3352
- Publication type
Article
- DOI
10.2307/3110373