Public investment: optimal provision of Hicksian public inputs

A considerable portion of government spending is devoted to commodities that are not public goods but that directly affect production possibilities. Examples include public infrastructure like roads and dams; educational facilities and research projects in basic science; and some forms of information. Such commodities are public inputs. In a small open economy context, the focus of this paper is on those that are Hicksian in nature. An interesting decomposition of the beneficial impact of a Hicksian public input is developed. Then first-best and second-best optimality conditions for public inputs that are comparable to those for collective consumption goods are derived.