Evaluation of Public Alternatives-Engineering Economics-Lecture Slides, Slides of Microeconomics

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Module No. 12

Evaluation of Public alternatives

Engineering

Economics

Private Versus Public Projects

 PURPOSE

Private Project -- Maximize profit, minimize costs Public Project -- Offer social benefits at minimum cost (i.e., health, employment ) without profit

 CAPITAL SOURCES

Private Project -- Private investors and lenders Public Project -- Taxation; Private Lenders

 FINANCING

Private Project -- Individuals (for sole proprietorships and partnerships); stocks and corporate bonds (for corporations) Public Projects -- Direct taxes, Low, no-interest or private loans, bonds, subsidies

 PROJECT BENEFICIARIES Private Project -- Those undertaking project Public Project -- General public  CONFLICT OF PURPOSES More common for public projects (i.e., dam for flood control vs environmental preservation)  CONFLICT OF INTERESTS More common for public projects (i.e., intra-agency conflicts)  POLITICAL INFLUENCE More common for public projects ( i.e., changing decision makers, pressure groups, financial and residential restrictions)  EFFICIENCY MEASUREMENT Private Project -- Rate of Return on capital Public Project -- No direct comparison with private projects

Private Versus Public Projects

 Benefits - The favorable consequences of the project to

the project sponsors (i.e., the public for public projects)

 Costs -- Monetary disbursements required (i.e., of the

government for public projects)

 Disbenefits -- The negative consequences of the project to

the project sponsors

Benefits, Costs, And Disbenefits

Conventional Benefit / Cost (B/C) Ratio With Present Worth

PW (benefits of the proposed project)

B/C = ---------------------------------------------

PW (total costs of the proposed project)

Bp = Present worth of total benefits

P = Initial Investment

Cp = Present worth of cost of operation & maintenance

Bp BF BA B/C ratio = ---------- = ---------------- = ----------------- P + Cp PF + CF PA + C