terms. The function that he uses may be benefit-cost ratio, profit or some similar
utility metric. However, government is in a slightly different situation because it
embraces and allocates resources on behalf of the assorted population it governs.
When the resources are expended, the goods produced should benefit all the
population in a fair manner. Thus, it may not be fair for government to maximize
undistributed profit or benefit-cost welfare functions, simply for their own sake.
Is there an alternative “social welfare function” which would be suitable for
governmental decisions? Although there is no universally accepted answer, some
of the typical approaches, together with the main advantages and disadvantages
include:
1. Simple Profit or Benefit-Cost Ratio Maximization
2. Profit Maximization with Inclusion of Secondary Social Benefits and Costs
3. Profit Maximization with Constraints
4. Vote Maximization
5. Democratic Strength of Preference
: consumption indifference curve
: optimal-choice function
V1
V2
X opt
X
V3
R
Y
Yopt
V3
V2
V1
Fig. 7.5 Optimum
allocation of goods
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7 Economic and Social Aspects of Infrastructure