Abstract
The social benefit is a term to measure the social usefulness of the public investments. Benefits are termed direct benefits or indirect benefits. They are also classified into origin basis benefits or incidence basis benefits based on the calculation method. To calculate the social benefits generally means the calculation based on the origin basis. In this paper, we assume a closed economy, and analyse the case where the benefits on the incidence basis are greater than those on the origin basis. The assumed economy has external economies of the Marshallian type. The laissez-faire equilibrium is different from the social (Pareto) optimum equilibrium. The Pigouvian prescription of tax and subsidy is analysed to realize the Pareto optimum equilibrium through the market equilibrium. The system of tax and subsidy takes account of the Coase Theorem. We assume the public investment project of highway investments in the managed economy. The two types of benefits of the project are calculated, and compared with each other.
