An analytical framework for assessing the impact of internalities on policy and projects using examples from Papua New Guinea

The government failure paradigm is nowadays an integral part of modern policy analysis. Several taxonomic models of government failure have been advanced, perhaps most notably the theory of 'non-market' failure developed by Charles Wolf. This model identifies four main sources of socially suboptimal policy outcomes consequent upon the failure of public agencies, including 'internalities'. Using examples drawn from the Australian foreign aid environment in Papua New Guinea, this paper develops a conceptual framework for incorporating positive and negative internalities into the analysis of the impact of aid on development projects, programs and policies. It is argued inter alia that previous work has neglected the significance of these internalities.