The Benefit-Cost Ratio in Resource Development Planning

The stimulus for this article was an observation that resource development in the United States is of a lumpy or whole project-by-project character. We seem to have looked at resource development proposals in isolation from other worthwhile activities and to have been preoccupied with the magnitude of “benefit-cost ratios†in evaluating and comparing individual resource development activities, projects, or programs. Unless properly interpreted, however, such ratios can mislead planners and legislators to invest capital and other inputs in a way that leads to a less than fully efficient pattern of resource development, even where the objective is only to maximize quantifiable monetary benefits. Accordingly, this analysis examines the “benefit-cost ratio†in the context of an income-producing efficiency objective and elementary production theory. Such other currently emphasized objectives as environmental quality improvement are treated implicitly, though not within a multiobjective framework. For a more complete treatment of these see Miller and Holloway [9] who have illustrated an application of multiobjective resource planning principles recently issued by the Water Resources Council [15]. Other particular papers and reports dealing with multiobjective resource development planning are [3, 4, 5, 7, 9, 13 and 14].