Economic Analysis in Governmental Decisionmaking.

by William E. Hoehn

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A discussion of the practical aspects of economic analysis, using as examples of Bureau of Reclamation Water Resources projects. Issues raised are the role of interest or discount rates, the determination of economic lifetime, the assessment of nonquantifiable factors, the problem of real alternatives, and the role of analysis in identifying critical parameters. The majority of water resources projects have shown less than satisfactory results; the fault lies in the rules specifying interest rates, payment periods, method of calculating benefits and costs, and method of determining benefits to be included. The problems of economic analysis arise primarily from ingrained agency optimism, reliance on assumptions from prior studies, incomplete guidance from decisionmakers, and codified rules for analysis that become less relevant with time. Economic analysis does not guarantee that decisionmaking will be easier; it is hoped that it provides better information on the effects of resource allocations decisions, to provide a better basis for decisionmaking in general. 22 pp.

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