Abstract
ABSTRACT Government expenditures have been expanding at a rapid rate in the United States, and there is no indication this trend will be curtailed. The very nature of projects developed by these expenditures lends uncertainty to the estimates of costs and benefits that make up the benefit-cost ratio used for project justification. This paper presents a technique for recognizing uncertainty and bias in estimates of benefits and costs and for compensating for their effects on the benefit-cost ratio. Using this technique to analyze 48 projects of the Bureau of Reclamation, the authors found that for all projects, deviations of the realized benefit-cost ratios from those estimated indicated 44.2 percent less return to the nation's economy than was anticipated. With variation of this magnitude, it seems the decision-maker should be provided information about the likelihood and extent of deviations from cost and benefit estimates if he is to adequately ration capital among competing demands.
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