CHAPTER 7 -Benefit Cost Ratio - CHAPTER 7 Benefit Cost Ratio Evaluation of public projects In all the preceding discussions we focused our attention on

CHAPTER 7 -Benefit Cost Ratio - CHAPTER 7 Benefit Cost...

This preview shows page 1 - 10 out of 33 pages.

CHAPTER 7 Benefit Cost Ratio
Image of page 1
Evaluation of public projects In all the preceding discussions we focused our attention on private projects, where the objective was to maximize the profits while adhering to the contractual requirements of the projects. The objective of public projects is to provide goods/services to the public at the minimum cost. The benefit accrued from such projects should at least recover the cost of the projects. Public projects here mean those funded by Government (State or Centre)
Image of page 2
Benefit cost ratio
Image of page 3
Benefit cost ratio From the public's point of view, delays mean lost earnings. as delays cause people to spend more time on transportation. Comparison of the investment costs of a project with the project's potential benefits, a process known as benefit-cost analysis, is an important feature of the economic analysis method
Image of page 4
Benefit cost ratio Benefit-cost analysis is a decision-making tool used to systematically develop useful information about the desirable and undesirable effects of public projects. In a sense, we may view benefit-cost analysis in the public sector as profitability analysis in the private sector. In other words, benefit-cost analysis attempts to determine whether the social benefits of a proposed public activity outweigh the social costs.
Image of page 5
Benefit cost ratio Usually, public investment decisions involve a great deal of expenditure, and their benefits are expected to occur over an extended period of time. Examples of benefit-cost analyses include studies of public transportation systems, environmental regulations on noise and pollution, public safety programs. education and training programs, public health programs. flood control systems, water resource development projects, and national defense program
Image of page 6
Benefit cost ratio The three types of benefit-cost analysis problems are as follows: (1 ) problems for which the goal is to maximize the benefits for any given set of costs (or budgets). (2) problems for which the goal is to maximize the net benefits when both benefits and costs vary, and (3) problems for which the goal is to minimize costs in order to achieve any given level of benefits (often called cost-effectiveness analysis )
Image of page 7
Benefit cost ratio To evaluate public projects designed to accomplish widely differing tasks. we need to measure the benefits or costs in the same units in all projects so that we have a common perspective by which to judge them. In practice, this requirement means expressing both benefits and costs in monetary units , a process that often must be performed without accurate data. In performing benefit-cost analysis, we define users as the public and sponsors as the government
Image of page 8
Benefit cost ratio The general framework for benefit-cost analysis can be summarized as follows:
Image of page 9
Image of page 10

You've reached the end of your free preview.

Want to read all 33 pages?

  • Summer '16
  • jemal salih
  • Government, Benefit-cost ratio

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes