92 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28 
also constrained to take account of the effects. of investments 
on the- foreign balance of the nation, and, indeed, the general 
budgetary position. If financing the project will lead to a more 
inflationary (or less deflationary) budget, these are external 
consequences that must be taken into account. Furthermore, 
there is the problem of the « social rate of discount », an issue 
[ intend to avoid as much as possible. If the social rate of 
discount differs from the market rate, then the social value of 
investments that will be displaced by the government invest- 
ment will be different from the market value. In this cir- 
cumstance, the appraiser of a government investment is con- 
fronted by the problems of estimating how much private invest- 
ment the project will displace, if any, and of evaluating the 
social value of this displaced investment. In short, even when 
it comes to costs, the usual accountants’ and engineers’ estim- 
ates are likely to be unsuitable for economic analysis. Never- 
theless, we shall concentrate on the problems posed by benefit 
evaluation, though some of. the more important problems on 
the cost side will force themselves upon ,us. 
The essential problem on the benefit side is that the benefits 
expected to flow from a public investment tend to be diverse, 
non-monetary, ‘ incommensurable, and difficult to measure in 
any units. Several expedients for meeting this problem are 
available or conceivable. The only one much used in practice 
has come to be called « benefit-cost analysis », though, as we 
shall see, it hardly deserves this proud name. The first step 
in this procedure is to have engineers prepare preliminary 
designs for the physical facilities and to estimate the costs of 
construction and the outputs and other physical characteristics 
of the system. Frequently the engineers will submit two or 
three alternative designs. The economic analysis, which fol- 
lows, concentrates in the first instance on the monetary results 
of those designs. It consists essentially in placing values upon 
those physical outputs of the system that either have market 
prices or to which monetary values can be imputed readily. 
3] Dorfman - pag. 6