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.
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Volume (Year): 38 (2011)
Issue (Month): 3 (February)
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References listed on IDEAS
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- Aliza Fleischer & Daniel Felsenstein, 2002. "Cost-Benefit Analysis Using Economic Surpluses: A Case Study of a Televised Event," Journal of Cultural Economics, Springer, vol. 26(2), pages 139-156, May.
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- Hockley, G. C. & Harbour, G., 1983. "Revealed preferences between public expenditures and taxation cuts: Public sector choice," Journal of Public Economics, Elsevier, vol. 22(3), pages 387-399, December.
- Hans Groot & Evert Pommer, 1987. "Budgetgames and the private and social demand for mixed public goods," Public Choice, Springer, vol. 52(3), pages 257-272, January.
- Garber, Alan M., 2000. "Advances in cost-effectiveness analysis of health interventions," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 4, pages 181-221 Elsevier.
- D.A.L. Auld, 1980. "Preference Revelation for Public Goods: an Empirical Analysis," Public Finance Review, , vol. 8(3), pages 277-289, July.
- Franco Papandrea, 1999. "Willingness to Pay for Domestic Television Programming," Journal of Cultural Economics, Springer, vol. 23(3), pages 147-164, August.
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