When and Where to Invest in Infrastructure

Jan Brueckner and Pierre Picard

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper analyzes an irreversible “where-and-when” investment decision, in which a govern- ment 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.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:14-32

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