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Measurement of the social loss of wrong public budget allocation

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  • Nissim Ben‐David
  • Tchai Tavor

Abstract

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.

Suggested Citation

  • Nissim Ben‐David & Tchai Tavor, 2011. "Measurement of the social loss of wrong public budget allocation," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 38(3), pages 209-217, February.
    • Handle: RePEc:eme:ijsepp:v:38:y:2011:i:3:p:209-217
    DOI: 10.1108/03068291111105156
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    References listed on IDEAS

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