Measurement of the social loss of wrong public budget allocation
Purpose - The purpose of this paper is to measure the social loss occurring due to the inability of the government to use the real public demand function. Design/methodology/approach - The authors developed a model that enables maximization of the public utility of a given public budget by maximizing total consumer surplus, and presented a method for calculating the social loss due to the inability to use the real public demand function. Findings - The social loss occurring due to the inability of the government to use the real public demand curve was shown. Research limitations/implications - In reality, it is impossible to get the proper evaluation of social utility function. Instead, the authors assumed a given public demand for each public good. Practical implications - The paper presents a way to measure overtime social loss as a function of the sum of overtime government expenses, the coefficient of variation of the public good supply and the elasticity of demand of the average demand curve. Social implications - Improving the allocation of public budget. Originality/value - Given the demand curve for each public good, this paper presents a technique for the optimal allocation of a given budget in order to maximize aggregate consumer surplus.
Volume (Year): 38 (2011)
Issue (Month): 3 (February)
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