Article ID: | iaor19992165 |
Country: | United States |
Volume: | 10 |
Issue: | 1 |
Start Page Number: | 21 |
End Page Number: | 52 |
Publication Date: | Jan 1998 |
Journal: | Journal of Public Budgeting, Accounting and Financial Management |
Authors: | Richardson Keith |
Keywords: | decision: studies, management, economics, politics, decision theory, statistics: regression |
Public and private sector managers make investment decisions under uncertainty. Economic efficiency requires that managers who wish to maximize expected utility use NPV. A field test reports that a lower proportion of public managers utilize NPV than private managers. This difference is significant in both logistic regression and chi-square tests for three competing, but not mutually exclusive, reasons. First, taxpayers are a primary source of capital. Taxation decisions are primarily political events and inefficiency is less likely to be disciplined by capital withdrawal. Second, it is more difficult to estimate expected benefits and costs. Third, investment decisions are often the result of political, not economic, processes. The objective may not be maximization of NPV.