Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46418
Authors: 
Gerlagh, Reyer
Liski, Matti
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Public Choice 3330
Abstract: 
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.
Subjects: 
public investments
cost-benefit analysis
inconsistent preferences
JEL: 
H43
H41
D61
Q54
E21
Document Type: 
Working Paper

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