This study concerns itself with the process of public sector resource allocation in Canada from 1965-1975. An examination of the Federal Government's own procedure manual for program evaluation, and the analysis of several program evaluations for Departments of Health, Education and Manpower, reveal that the analytical procedures and economic precepts used depart significantly from accepted norms of economic theory. Consequently, the rates of return claimed for these programs are distorted and, where they are used for the rationing of public sector resources, collective welfare will not be optimized. The major causes of these problems are improper analytical methodology and the failure to adhere to basic economic principles of resource allocation. Support for this hypothesis derives from accepted economic theory with respect to welfare maximization and the allocation of public expenditures.

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