Secondary Benefits, External Economies, and the Justification of Public Investment
ONE argument often used to justify public services is that the benefits of the activity cannot be limited to the direct recipients of the services those who would purchase the product if it were privately produced. These benefits, which are presumed to accrue to a large sector of the nation, are referred to as secondary or indirect benefits. There are many formulations of these secondary benefits. This paper will focus on the use of this concept and its measurement by the Bureau of Reclamation. In the case of the Bureau of Reclamation the development of this concept and its measurement is more than an argument for an extension of the public sector. The measurement is claimed to be part of the planning process, since it is supposed to enter into the determination of the scale of investment in water projects and the allocation of public funds among projects. There are several other formulations of the appropriate concept of secondary benefits in use in federal agencies, but these will receive only passing attention.' As background it should be mentioned that those who advocate the use of the secondary benefits concept in project justification are today on the defensive. The current position of several staff coordinating agencies in Washington is to minimize the importance of secondary benefits. In this paper we shall restrict our attention to one type of public investment dams and distribution systems for irrigation projects. The conclusions of this paper are that the procedures followed by the government agencies are confusing and incorrect, but that secondary benefits can be significant. The proper framework within which to discuss the secondary benefits is the theory of external economies.
- DOI
- 10.2307/1926044
- Volume
- 39 (3)
- Pages
- 284
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