A NORMATIVE ANALYSIS OF PUBLIC CAPITAL

A normative analysis of short-term public capital investments is carried out using cost benefit analysis. This cost benefit approach explicitly incorporates the durability of capital into the computation and thus includes an aspect of public capital omitted from previous studies which focus on productivity. Estimation methods used elsewhere have been improved by properly handling several concerns that have been raised. In addition, this behavioural model yields many structural equations suitable for estimation which results in highly efficient parameter estimates. Although a small elasticity is found for public capital, the benefit is greater than the cost.