Question

3. What kind of problems does the government face when trying to perform a benefit-cost analysis of whether and/or how much of a public project to produce?

Answer 1

It is bit difficult to assess the total benefits derived from a public project as it is difficult in practice to assess the true benefits and costs. But the government must assess the benefits in terms of social benefit derived and costs in terms of negative externalities of the public of such projects. The government must make an educated guess appropriately in order take an investment decision by assessing this externalities and benefits associated with the public good.