10. Public Sector Decision Making | Notion

Concept	Explanation
Market Failure	When markets don’t account for social costs/benefits.
Public Goods	Non-excludable, non-rival (e.g., police, defence).
Natural Monopoly	Economies of scale make single provider efficient.
CBA (Cost–Benefit Analysis)	Framework for public project evaluation.
Social Discount Rate (SDR)	Lower than private MARR; reflects societal time value.
BCR / BCRM	Ratios comparing benefits to costs; > 1 means viable.
Intangible Benefits	Valued using contingent valuation, travel cost, hedonic pricing.
Decision Criteria	Independent → BCR > 1; Mutually exclusive → incremental BCR.
Ambiguity Risk	Defining “benefit” vs “cost” can change outcome; use PW/AW for rigor.

Introduction and Rationale for Public Sector Projects

1. The Broader Context

Engineers must consider social and environmental impacts, not just cost and profit.
Examples:
- The Industrial Revolution improved life but caused pollution.
- The Sydney Tar Ponds in Nova Scotia show the long-term cost of ignoring environmental externalities.

2. Market Failure

Market failure occurs when private markets don’t reflect true social costs/benefits.
Causes include:
- No market for affected parties to express costs (e.g., pollution victims)
- Information asymmetry
- Monopolies influencing prices
- Public goods or external benefits not captured in transactions

3. Remedies

Government intervention through:
1. Direct provision (police, health care, education)
2. Policy instruments (standards, permits, bans)
3. Information programs or voluntary agreements
Non-government remedies: public pressure, lawsuits, boycotts, lobbying.

4. Public vs. Private Goods

Public goods: can’t exclude non-payers (e.g., streetlights, defence).
Natural monopolies: single provider more efficient (e.g., electricity).

5. Privatization & Public–Private Partnerships (P3)

Trend: governments partner with private firms for infrastructure (e.g., Highway 407 ETR, Confederation Bridge).
Types: BOT (build-operate-transfer), BOOT (build-own-operate-transfer).
Trade-off: efficiency vs. accountability/social value.