PUBLIC-INVESTMENT - OPTIMAL PROVISION OF HICKSIAN PUBLIC INPUTS

A considerable portion of government spending is devoted to commoditie s that are not public goods but that directly affect production possib ilities. Examples include public infrastructure like roads and dams; e ducational 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 Hic ksian in nature. An interesting decomposition of the beneficial impact of a Hicksian public input is developed. Then first-best and second-b est optimality conditions for public inputs that are comparable to tho se for collective consumption goods are derived.