Arbeitspapier

Public investment as commitment

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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 3330

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

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

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Gerlagh, Reyer
  • Liski, Matti
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2011

Other Objects (12)