A PROBLEM OF BIAS IN BENEFIT-COST ANALYSIS: CONSUMER SURPLUS RECONSIDERED

BENEFITS FROM A PROJECT ARE MEASURED AS THE SUM OF WHAT THE SOCIETY WOULD BE WILLING TO PAY RATHER THAN FOREGO THE PROJECT. THE POINT OF THIS PAPER IS THAT THE PRINCIPLE THAT IS SO WISELY APPLIED TO MEASURING BENEFITS IS NOT USUALLY CARRIED OVER TO THE MEASUREMENT OF COSTS AND THUS A BIAS IS CREATED. THE USUAL THEORY ASSUMES THAT THE OPPORTUNITY COSTS OF RESOURCES ARE ACCURATELY MEASURED BY THEIR MARKET PRICES. IT IS SHOWN THAT, UNLESS A PROJECT CONSUMES ONLY A MICROSCOPIC PORTION OF THE RESOURCES GOING INTO A LARGE NUMBER OF PRIVATE PROJECTS, THE INCREASE IN RESOURCE COSTS OCCASIONED BY THE RESOURCE USE OF THE PUBLIC PROJECT WILL CAUSE A SIGNIFICANT REDUCTION IN CONSUMER'S SURPLUS FROM OTHER GOODS. THIS IS THE COST NOT USUALLY CONSIDERED. IN UNDERDEVELOPED ECONOMIES THE USE OF THE GENERALLY-ACCEPTED TOOLS OF BENEFIT-COST ANALYSIS IS ALMOST CERTAIN TO PRODUCE SERIOUS RESOURCE MISALLOCATIONS, IN THAT PUBLIC PROJECTS WILL BE UNDERTAKEN WHICH ACTUALLY COST MORE THAN THEY PRODUCE. /BPR/

  • Availability:
  • Supplemental Notes:
    • Vol 33, pp 337-342
  • Corporate Authors:

    N/A

    ,   United States 
  • Authors:
    • Dunn, R M
  • Publication Date: 1967-1

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Filing Info

  • Accession Number: 00201348
  • Record Type: Publication
  • Source Agency: Bureau of Public Roads /US
  • Files: TRIS
  • Created Date: Apr 12 2003 12:00AM