Resource Allocation: An Economic Problem

Resource Allocation: An Economic Problem

Selected Issue and Background

The issue, which I have chosen to investigate, is the allocation of resources, which are primarily money, by a local authority, namely the City of Westminster Council. The reason why this allocation of resources has become an economic problem is because money is a finite resource, so therefore there is scarcity and the council have to make choices as to how to allocate the resources they have been given. This type of resource allocation is different to that faced by a private company as they have the opportunity to expand and increase their resources, whereas local authorities often do not have the ability to increase their resources overall, rather than deflecting resources from one need to another.

The Westminster council has to allocate money to various departments from this general fund. This money has to be allotted to the various departments, which require funding such as Education, Environment and Leisure, Finance, Housing, Planning and Transportation and Social services. Not only does the council have to simply allocate resources to the various departments, but it also has to judge how much of the allocation, education for example it chooses to spend on using its own staff and facilities to produce a service, rather than contracting out other companies to provide the work for them.

Up until a point the department can use its existing funded facilities such as administration and technology to produce a service such as transportation and planning. An example of this may be how road maintenance is carried out. For many small roads the local authority transport department may be able to re-surface roads for a very small cost, for example £1,000 per 10m. This is very efficient for the local authority as much of the capital; labour, land and enterprise are already in place. However for bridges for example the local authority lacks the equipment, i.e. capital and labour to provide the service to repair them. In this case it would no longer be efficient to acquire the necessary labour and capital to repair the bridge. This might work out at £10,000 per meter.

At this point the choice appears whether to contract out the repair of the bridge to a private company who have the capital and labour to provide this service more efficiently, or to acquire the necessary resources to perform the task themselves.