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White Elephants and the Limits to Efficient Investment

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  • Frank Bohn

Abstract

This paper studies a policymaker’s optimal choice between redistribution and efficient public investment. Under political instability, there is myopic government behavior which results in underinvestment. Above some critical value of political instability, it is optimal not to invest at all. This finding also suggests that it may be rational for governments to refrain from anti-corruption investment, even if they are not rent-seeking themselves.

Suggested Citation

  • Frank Bohn, 2004. "White Elephants and the Limits to Efficient Investment," Working Papers 200413, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:200413
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    File URL: http://hdl.handle.net/10197/6369
    File Function: First version, 2004
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    References listed on IDEAS

    as
    1. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    2. Robinson, James A. & Torvik, Ragnar, 2005. "White elephants," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 197-210, February.
    3. Pierre-Guillaume Méon & Khalid Sekkat, 2005. "Does corruption grease or sand the wheels of growth?," Public Choice, Springer, vol. 122(1), pages 69-97, January.
    4. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, vol. 20(1), pages 1-5.
    5. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-781, August.
    6. Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November.
    7. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    8. Lien, Da-Hsiang Donald, 1986. "A note on competitive bribery games," Economics Letters, Elsevier, vol. 22(4), pages 337-341.
    9. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    10. Frank Bohn, 2004. "The trade-off between monetary and fiscal solidity : international lenders and political instability," Working Papers 200408, School of Economics, University College Dublin.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Political instability; Myopic behavior; Public investment; Corruption; Political economy; Transition and developing countries;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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