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Public Investment and the Risk Premium for Equity

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Author Info

  • Simon Grant

    (Tilburg University)

  • John Quiggin

    (Australian National University)

Abstract

Analysis of the equity premium puzzle has focused on private--sector capital markets. However, the existence of an anomalous equity premium raises important issues in the evaluation of public--sector investment projects. These issues are explored below. We begin by formalizing the argument that an equity premium may arise from uninsurable systematic risk in labour income, and show that, other things being equal, increases in public ownership of equity will improve welfare, up to the point where the equity premium is eliminated. Finally, we consider policy implications and the optimal extent of public ownership. Copyright The London School of Economics and Political Science 2003

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 70 (2003)
Issue (Month): 277 (February)
Pages: 1-18

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Handle: RePEc:bla:econom:v:70:y:2003:i:277:p:1-18

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Cited by:
  1. Quiggin, John, 2010. "Bad Politics makes bad policy: the case of Queensland's Asset Sales Program," Risk and Sustainable Management Group Working Papers 151523, University of Queensland, School of Economics.
  2. Vance Martin & G.C. Lim & Esfandiar Maasoumi, 2004. "Discounting The Equity Premium Puzzle," Econometric Society 2004 Australasian Meetings 331, Econometric Society.
  3. Quiggin, John, 2009. "Six Refuted Doctrines," Risk and Sustainable Management Group Working Papers 151521, University of Queensland, School of Economics.
  4. Bruno CRUZ & Aude POMMERET, 2003. "Public capital and private investment, a real option approach," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.10, Université de Lausanne, Faculté des HEC, DEEP.
  5. Hultkrantz, Lars & Krüger, Niclas & Mantalos , Panagiotis, 2012. "Risk-adjusted long term social rates of discount for transportation infrastructure investment," Working Papers 2012:14, Örebro University, School of Business.
  6. Heinzel, Christoph, 2008. "Implications of diverging social and private discount rates for investments in the German power industry: a new case for nuclear energy?," Dresden Discussion Paper Series in Economics 03/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  7. Zimper, Alexander, 2012. "Asset pricing in a Lucas fruit-tree economy with the best and worst in mind," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 610-628.
  8. Christoph Heinzel & Ralph Winkler, 2007. "The role of environmental and technology policies in the transition to a low-carbon energy industry," CER-ETH Economics working paper series 07/71, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  9. John Quiggin, 2003. "Looking back on microeconomic reform: a skeptical viewpoint," Australian Public Policy Program Working Papers WPP03_1, Risk and Sustainable Management Group, University of Queensland, revised Aug 2003.
  10. Quiggin, John C., 2006. "Repurchase of renewal rights: a policy option for the National Water Initiative," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), September.
  11. Grant, Simon & Quiggin, John, 2003. "The Risk Premium for Equity: Implicatiosn for Resource Allocation, Welfare adn Policy," Working Papers 2003-14, Rice University, Department of Economics.
  12. Grant, S. & Quiggin, J., 2001. "The Risk Premium for Equity: Explanations and Implications," Discussion Paper 2001-89, Tilburg University, Center for Economic Research.
  13. Simon Grant & John Quiggin, 2002. "The Risk Premium for Equity: Implications for the Proposed Diversification of the Social Security Fund," American Economic Review, American Economic Association, vol. 92(4), pages 1104-1115, September.
  14. Mark A. Moore & Anthony E. Boardman & Aidan R. Vining & David L. Weimer & David H. Greenberg, 2004. "“Just give me a number!” Practical values for the social discount rate," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 789-812.

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