Efficiency in public infrastructure provision: a theoretical note
AbstractPurpose – The purpose of this paper is to shed new light on the debate about the appropriateness of the Kaizuka rule, a Samuelson type of efficiency rule for public inputs, for the provision of firm-augmenting public inputs. Firm-augmenting public inputs are commonly included in public infrastructure modelling. Design/methodology/approach – In the microeconomic social surplus framework, and assuming perfect competition, the paper analyses how firm-augmenting public inputs should be provided in order to maximise the welfare of consumers and producers. For this purpose, the paper develops a social surplus efficiency rule, i.e. the Boadway rule. Afterwards the question what the characteristics of firm-augmenting public inputs mean for its efficient provision is examined. Findings – The findings show that under perfect competition an omniscient government is unable to efficiently provide firm-augmenting public inputs due to the characteristics of firm-augmenting public inputs but not due to inappropriate efficiency rules. Research limitations/implications – The findings show that future research would be ill advised to model public infrastructure as a firm-augmenting public input. Practical implications – Policy conclusions drawn from models that include firm-augmenting public inputs, such as fiscal competition and endogenous growth models, should be reconsidered. Originality/value – The paper makes a strong case that firm-augmenting public input is not a viable concept for modelling public infrastructure. Rather, firm-augmenting public inputs are similar to free goods.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 35 (2008)
Issue (Month): 6 (November)
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- Mussolini, Caio Cesar & Kuhl Teles, Vladimir, 2010.
"Infrastructure and productivity in Latin America: is there a relationship in the long run?,"
Textos para discussÃ£o
246, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
- Vladimir Kühl Teles & Caio Cesar Mussolini, 2012. "Infrastructure and productivity in Latin America: is there a relationship in the long run?," Journal of Economic Studies, Emerald Group Publishing, vol. 39(1), pages 44-62, January.
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