Ch 6 pp - Chapter 6 Cost-Benefit Analysis and Government Investments 1 Introduction -benefit .The limitati

Ch 6 pp - Chapter 6 Cost-Benefit Analysis and Government...

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1 Chapter 6 Cost-Benefit Analysis and Government Investments
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Introduction The main goals of the chapter are to introduce you to the techniques of program budgeting and cost-benefit analysis and to make it clear how these can be used to improve efficiency within government. The limitations of these techniques are also discussed. Some of the pitfalls of doing cost-benefit analysis are highlighted, and underlying theory is stressed. Many examples are provided in the chapter to highlight some of the pragmatic issues involved in doing budget and cost-benefit analysis. 2
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Chapter Outline Economic Analysis for the Budget Process Cost-Benefit Analysis Enumeration of Benefits and Costs Evaluation of Benefits and Costs Discounting Future Net Benefits How the Discount Rate Affects the Present Value of Projects Choosing the Social Rate of Discount Ranking Projects. 3
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Budget Process Most of the federal government budget is spent on two major programs: entitlement programs & discretionary programs. Entitlement programs are spending programs that are automatically funded every year without congressional approval. These programs are transfer programs (social security, medicare, medicaid) and interest payment on the national debt. Discretionary programs are spending programs that Congress must renew and approve every year. 4
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Economic Analysis of the Budget Process Achieving the least-cost means of accomplishing an authorized objective involves the following. A program Program budgeting The mission Cost-effectiveness analysis. 5
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6 Economic Analysis for the Budget Process: A Program is a combination of government activities producing a distinguishable output. Program Budgeting is the system of managing government expenditures that attempts to compare the program proposals of all government agencies authorized to achieve similar objectives. The mission of a government agency is comparable to a business firm’s product. Cost-effectiveness analysis is a technique for determining the minimum-cost combination of government programs to achieve a given objective. It is a technique that aids in ranking alternative government projects according to the net benefits they provide.
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7 Cost-Effectiveness Analysis: Cost-Effectiveness Analysis requires: Stating an objective Recognizing the alternative means of meeting the objective
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  • Fall '11
  • Na
  • Cost-utility analysis, Benefit-cost ratio

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