ECONOMIC ANALYSIS AND EFFICIENCY IN PUBLIC EXPENDITURE

Benefit-Cost Analysis involves several steps: development of a program information structure (product categories), estimating the production function, pricing benefits and costs, adjusting for opportunity costs, choice of investment criteria, and incorporating uncertainty. Each step involves conflicts of interest that can only be resolved by political (collective) choice of property rights assigning opportunities to the various interest groups. The rules of benefit-cost analysis for public expenditure are equivalent of private property rights established by legislative and court decisions for the market economy. The traditional separation of technical analysis and political choice is not longer tenable. Theory and practice point to a more interactive, iterative relationship between analysts and politicians.