Researchers, commentators, and politicians have devoted steadily more attention to infrastructure in response to claims that inadequate accumulation of public capital has contributed to substandard U.S. economic growth. Despite this, the link between infrastructure and productivity growth...

What is the best way to incorporate a risk premium into the discount rate schedule for a real investment project with uncertain payoffs? The standard CAPM formula suggests a beta-weighted average of the return on a safe investment and the mean return on an economy-wide representative risky...

This note comments on two central issues for fiscal policy design in the UK, highlighted in the recent Code for Fiscal Stability' proposed by the new Labour government. The first concerns the merits of the so-called golden rule of public sector investment' -- the proposition that, over the...

Most developed economies invest in public goods such as national defense, education, infrastructure, and the environment. Expenditures on public projects entail a diversion of funds away from investments in private capital. Discount rates used to evaluate such projects should reflect the rate of...

This paper evaluates optimal public investment and fiscal policy for countries characterized by limited tax and debt capacities. We study a non stochastic CRS endogenous growth model where public expenditure is an input in the production process, in countries where distortions and limited...

Recent empirical work in public finance uses the housing price response to public investments to assess the efficiency of local durable public good provision. This paper investigates the theoretical foundations for this technique. In the context of a novel theoretical model developed to study...

Behavioral economics identifies myriad deviations from classical economic assumptions about consumer decision-making, but lacks evidence on how its diverse phenomena fit together and whether they are amenable to modeling as low-dimensional constructs. We pursue such parsimony on three fronts,...

Many people care about how they are perceived by those around them. A number of recent field experiments in economics have found that such social image concerns can have powerful effects on a range of behaviors. In this paper, we first review this recent literature aimed at identifying social...

This paper presents a framework for analyzing how bounded rationality affects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model – with one main new “cognitive discounting” parameter, which quantifies how poorly agents...