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 investment
 will be different from the market value. In this circumstance,
 the appraiser of a government investment is confronted
 by the problems of estimating how much private investment
 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’ estimates
 are likely to be unsuitable for economic analysis. Nevertheless,
 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 follows,
 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