Handbook of Research on Cost–Benefit Analysis
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Handbook of Research on Cost–Benefit Analysis

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Edited by Robert J. Brent

This Handbook provides an authoritative overview of current research in the field of cost–benefit analysis and is designed as a starting point for those interested in undertaking advanced research. The Handbook contains major contributions to the development of the field, focussing on standard microeconomic policy evaluations, the relatively neglected area of macroeconomic policy and its integration into a formal CBA framework, and dynamic considerations in CBA
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Chapter 15: Cost–Benefit Analysis and the Evaluation of the Effects of Corruption on Public Projects

Robert J. Brent

Extract

15 Cost–benefit analysis and the evaluation of the effects of corruption on public projects Robert J. Brent 1 Introduction Cost–benefit analysis (CBA) is the basis for rational economic decision making, whether it is for the government or individuals. If benefits are greater than costs, then a project or activity should be expanded. If costs are greater than the benefits, the project or activity should be contracted. And if benefits equal costs, the existing scale of operations is optimal. A social CBA obtains its measurement principles concerning the benefits and costs from applied welfare economics. Its main purpose is to incorporate considerations into public expenditure decision making that caused private market decision making to fail to produce optimally (due to the existence of externalities) or produce at all (pure public goods). However, these corrections for market failure lead only to potential gains. Once the public sector is involved there is also the potential for government failure. Public officials may have an agenda that is different from social welfare maximization. In particular, if these public officials are corrupt and try to maximize bribes which they keep for themselves, then this reality needs to be included as part of the cost–benefit evaluation. The Executive Board of the World Bank defined corruption in 1997 as: ‘The use of public office for private gain’. This definition is also the one used by Bardhan (1997) in his survey of corruption and development. Although this wrongly restricts the term ‘corruption’ to apply only to...

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