This paper re-examines the validity of using expected values to evaluate the social profitability of public investments under uncertainty. Departing from the usual assumption of an aggregate good, the setting is a small open economy that faces stochastic world prices for tradable goods and...

When deciding on the social desirability of public investment, the cost of a project is sometimes adjusted by a factor known as the Marginal Cost of Public Funds (MCPF) which captures the cost of raising public funds through distortionary taxation. However, there is no scholarly consensus on...