2002 Volume 5 Issue 1 Pages 002-014
The Japanese government has recently announced an action plan for cost reduction in public works which is targeting 30% reduction. The actions oriented only to cost side may be misleading. The evaluation only from cost side cannot be consistent with the cost benefit analysis which has been already a standard method in public sectors. In addition, the rationale for calculating reduction rate in practice has not yet been clarified. This paper shows how the action plan should be evaluated consistently with the theory of cost benefit analysis in a simple framework of general equilibrium, in which the action for cost reduction is regarded as technological improvement for infrastructure development. The conditions which justify the evaluation by cost reduction rate are derived in the framework.
