Benefitcost Analysis

As the trustees of valuable public resources, public-sector managers must administer economic resources in a responsible manner. This task is made difficult by problems involved with assessing the true level of public demand for government-provided or government-administered goods and services. Avariety of nonmarket-based mechanisms have evolved that can be used to effectively administer government programs and investment expenditures. The most prevalent of these methods compares relative costs and benefits.

Pareto satisfactory

If investment in a public project makes at least one individual better off and no one worse off

Pareto optimal

When all Pareto satisfactory programs and investment projects have been undertaken potential Pareto improvement

When an anticipated program or project involves positive net benefits marginal social costs

Added private and public expenses marginal external costs

Expenses that are not directly borne by producers or their customers

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