Investment Decision Making Process and Public Projects

Investiční rozhodování a veřejně prospěšné projekty

Patrik Sieber

Acta Oeconomica Pragensia, 2005, vol. 2005, issue 4, 62-79

Abstract: When conducting valuation of investment in the public sphere, we must pay attention to the whole spectrum of economic disciplines. In our business practice we may in this area encounter many irrational opinions, out of line with the contemporary economy theory. To increase the effectiveness of public investment decision-making, we must qualify many business and public sphere organizations, and provide them with quality, conflict-free framework for evaluation of public projects. The point of this project is not the maximizing of shareholder value, but rather growth of the society welfare via the most advantageous allocation of rare resources among competing uses. One such method is the Cost-Benefit Analysis, which in monetary units quantifies the value of all impacts of an investment project on the society. Among the main conceptual presumptions we consider the relation between allocation effectiveness and value of project, definition of the main principle of valuation of inputs on the basis of Willingness-to-Pay (WTP) and evaluation pf project inputs on the basis of opportunity costs, dependency of WTP on the definition of society, and the anthropocentric nature of CBA. Microeconomic result of net benefits resulting from project impacts is the change of social welfare. Evaluation of project impacts is practicably dependent on whether the market for them is effective, ineffective or does not exist at all. The resulting socio-economic flows are transformed into their current value via public discount rate, and consecutively a NPV value is calculated.

Keywords: public sector; investments; investment project; Cost-Benefit Analysis; social welfare; social discount rate; weighted social opportunity costs; shadow prices of capital; net present value (search for similar items in EconPapers)
Date: 2005
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DOI: 10.18267/j.aop.205

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