Can Public Investment Have a Positive Rate of Return?
Journal of Political Economy
1973
The model presented assumes that public managers select investment projects hat maximize the net private benefits of their constituent pressure groups. This achieves increased agency size, which is more likely to increase managerial compensation than to maximize net social benefits, the assumed goal of the conventional public investment model. To increase agency size, managers must often resort to projects with low or negative return rates. The selection of such projects is possible because transactions costs are sufficiently large to bar successful opposition by disaffected taxpayers. The analysis as well as empirical evidence suggests that inefficient public projects are the rule rather than the exception.
- DOI
- 10.1086/260035
- Volume
- 81 (2, Part 1)
- Pages
- 401-413
- Language
- en
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- Sources
- openalex crossref