ABSTRACT
The change in value added would seem to be an alluring way to gauge the general equilibrium benefits from a public investment project. R. Young and S. Gray list the reports using value added to measure net benefits. The benefits from a public investment in a sector represent a positive-sum increase in the real income, as measured by the change in economic surplus, for one or more groups of people. When public investment increases productivity, it increases the marginal productivity of each input, which shifts the supply curve outward thereby increasing economic surplus. Thus, the public investment project that increases economic surplus affects different categories of people either positively and negatively. Consumers benefit from a decrease in the commodity price, which is measured as consumer surplus. The benefits in a benefit/cost analysis are measured by changes in economic surplus. An increase in total factor productivity will increase economic surplus.
