Public investment as commitment

Arbeitspapier

Should public assets such as infrastructure, education, and the environment earn the same return as private investments? The long-term nature of public investments provides commitment to current preferences, which justifies lower than private returns for time-inconsistent decision markers. An institutionalized (i.e., exogenous) rule demanding equalized comparable returns removes the bias and implements the standard cost-benefit requirement. We show that such a stand-alone rule has no general welfare content: it implements Pareto efficiency if and only if preferences are time-consistent. Efficiency requires rules not only for the composition of investments but also for overall savings. Without supplementary rules for savings, accepting lower returns for long-term public assets is welfare improving.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3330

Classification and Topics

• Classification: Wirtschaft ; Project Evaluation; Social Discount Rate ; Public Goods ; Allocative Efficiency; Cost-Benefit Analysis ; Climate; Natural Disasters and Their Management; Global Warming ; Macroeconomics: Consumption; Saving; Wealth
• Subject: public investments ; cost-benefit analysis ; inconsistent preferences ; Öffentliche Investition ; Kosten-Nutzen-Analyse ; Zeitkonsistenz ; Wohlfahrtseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gerlagh, Reyer ; Liski, Matti
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/46418
• Last update: 10.03.2025, 11:41 AM CET