Some Principles of Practical Welfare Economics

Non-profit institutions must make many kinds of decisions about allocations of resources. The theory is clear: allocate so that the marginal utility is equal in all uses. But this is more easily said than done.

This paper suggests a series of heuristic steps by which real-life non-profit allocation situations can be coordinated to the marginal analysis. It discusses the assumptions that must and should be made and sets forth a conceptual framework for the analytic decisions. The process is illustrated with an example from library research—the decision about how many books should be placed into storage libraries to maximize the welfare of a university community.