Delays in Public Goods

Author: Chatterjee, Santanu; Posch, Olaf; Wesselbaum, Dennis

Date: 2017-02

Publisher: University of Otago

Type: Working or discussion paper

Link to this item using this URL: http://hdl.handle.net/10523/7045

University of Otago

Abstract

In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.

Subjects: Public goods, delays, time overrun, cost overrun, implementation lags, fiscal policy, economic growth

Citation: ["Chatterjee, S., Posch, O., & Wesselbaum, D. (2017). Delays in Public Goods (Economics Discussion Papers Series No. 1702). University of Otago. Retrieved from http://hdl.handle.net/10523/7045"]

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