7.4.4 Vote Maximization
In this approach, the government acknowledges the majority view and accepts to be
directly responsive to voters. From this perspective, it always selects the option
preferred by the highest number of voters. The advantages of this approach are that
(a) it is democratic and hence ethically correct;
(b) it is particularly feasible; and
(c) it is likely to reallocate wealth from the rich to the poor.
Opponents argue that this can easily entail applying irrational and quite wasteful
policies. Furthermore, if the middle class outnumbers the poor, as is the case in many
countries today, any subsequent wealth reallocation may entail poor people getting
poorer.
7.4.5 Democratic Strength of Preference
Its originator, Foster, gave this name to this approach, where benefits should be
accounted for each individual (or household) in order to reflect their value to that
household (or individual), slightly in the line of behavioural economics (Kahneman
2012), well before its time. All other direct and indirect costs and benefits are
considered in purely financial terms, without any weightage. The argument used is
best illustrated by using an example. Let us assume that the average personal income
is Rs.100,000 per person per year, and that a proposed new tram line will produce an
average benefit of Rs.100 per person per year. Consider a person with an income of
Rs.50,000 who will benefit by Rs.300. To him, Rs.300 is twice (Rs.100,000/
Rs.50,000 ¼ 2) as important as it is to the average person. Therefore, Foster
recommends that his benefit should have a weightage factor of two and, thus, is to
be entered as Rs.600 (¼ 2 x Rs.300) in the social welfare function. Similarly, a
benefit of Rs.100 to one whose revenue is Rs.200,000 should be entered as Rs.50
(Rs.100,000/Rs.200,000 x Rs.100 ¼ Rs.50), and a benefit of Rs.20,000 to one
whose revenue is Rs.2,000,000 should be entered as Rs.1000. (Rs.100,000/
Rs.2,000,000 Â Rs.20,000 ¼ Rs.1,000). It is claimed that this method delivers a
reasonable and rational conciliation between efficiency and populism. This harmonic
distribution function certainly deserves consideration, but Kahneman (2012) suggests that people view such benefits (or losses) differently.
7.5 Designing Measures of Effectiveness: Public Health
Even when those concerned quite understand the behaviour of a system, it may not
be easy to carry out a benefit cost analysis because, at first sight, the various benefits
are not commensurate. The public health sector provides a good example,
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7 Economic and Social Aspects of Infrastructure
In this approach, the government acknowledges the majority view and accepts to be
directly responsive to voters. From this perspective, it always selects the option
preferred by the highest number of voters. The advantages of this approach are that
(a) it is democratic and hence ethically correct;
(b) it is particularly feasible; and
(c) it is likely to reallocate wealth from the rich to the poor.
Opponents argue that this can easily entail applying irrational and quite wasteful
policies. Furthermore, if the middle class outnumbers the poor, as is the case in many
countries today, any subsequent wealth reallocation may entail poor people getting
poorer.
7.4.5 Democratic Strength of Preference
Its originator, Foster, gave this name to this approach, where benefits should be
accounted for each individual (or household) in order to reflect their value to that
household (or individual), slightly in the line of behavioural economics (Kahneman
2012), well before its time. All other direct and indirect costs and benefits are
considered in purely financial terms, without any weightage. The argument used is
best illustrated by using an example. Let us assume that the average personal income
is Rs.100,000 per person per year, and that a proposed new tram line will produce an
average benefit of Rs.100 per person per year. Consider a person with an income of
Rs.50,000 who will benefit by Rs.300. To him, Rs.300 is twice (Rs.100,000/
Rs.50,000 ¼ 2) as important as it is to the average person. Therefore, Foster
recommends that his benefit should have a weightage factor of two and, thus, is to
be entered as Rs.600 (¼ 2 x Rs.300) in the social welfare function. Similarly, a
benefit of Rs.100 to one whose revenue is Rs.200,000 should be entered as Rs.50
(Rs.100,000/Rs.200,000 x Rs.100 ¼ Rs.50), and a benefit of Rs.20,000 to one
whose revenue is Rs.2,000,000 should be entered as Rs.1000. (Rs.100,000/
Rs.2,000,000 Â Rs.20,000 ¼ Rs.1,000). It is claimed that this method delivers a
reasonable and rational conciliation between efficiency and populism. This harmonic
distribution function certainly deserves consideration, but Kahneman (2012) suggests that people view such benefits (or losses) differently.
7.5 Designing Measures of Effectiveness: Public Health
Even when those concerned quite understand the behaviour of a system, it may not
be easy to carry out a benefit cost analysis because, at first sight, the various benefits
are not commensurate. The public health sector provides a good example,
196
7 Economic and Social Aspects of Infrastructure