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Where and when to invest in infrastructure

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  • Brueckner, Jan K.
  • Picard, Pierre M.

Abstract

This paper analyzes an irreversible “where-and-when” investment decision, in which a government must decide not only when to invest in income-increasing infrastructure but also where to make the investment, doing so under imperfect observability of the investment gains. The two models considered in the paper differ in the source of the imperfection. In the signal model, the imperfection comes from imperfect observability of initial income gains from the investment, while in the option model, it comes from the stochastic nature of the income gains in the second period. In addition to providing the first treatment of this type of problem, the analysis shows that the influences of underlying parameters on whether or not the government waits to invest are similar in the two models.

Suggested Citation

  • Brueckner, Jan K. & Picard, Pierre M., 2015. "Where and when to invest in infrastructure," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 123-134.
    • Handle: RePEc:eee:regeco:v:53:y:2015:i:c:p:123-134
    DOI: 10.1016/j.regsciurbeco.2015.05.003
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    Cited by:

    1. Giuseppe Francesco Gori & Patrizia Lattarulo & Marco Mariani, 2021. "The Expediting Effect of Monitoring on Infrastructural Works. A Regression-Discontinuity Approach with Multiple Assignment Variables," Papers 2102.09625, arXiv.org.
    2. Hua Zhong & Michael H. Taylor & Kimberly S. Rollins & Dale T. Manning & Christopher G. Goemans, 2019. "Who pays for water scarcity? Evaluating the welfare implications of water infrastructure investments for cities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(3), pages 559-600, December.

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    Keywords

    Infrastructure; Signal; Option;
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