Document Type

Report

Publication Date

6-1979

Number

61

Abstract

In their stimulating contribution to the theory of cost-benefit analysis, Arrow and Lind showed that "when the risks associated with a public investment are publicly borne, the total cost of risk bearing is insignificant and, therefore, the government should ignore uncertainty in evaluating public investments... This result is obtained not because the government is able to pool investments but because the government distributes the risk associated with any investment among a large number of people. It is the risk-spreading aspect of government investment that is essential to this result." Arrow and Lind proved their result from an asymptotic point of view, letting the number of taxpayers grow infinitely large.

Published As

This paper was published in The American Economic Review, Vol. 69, No. 3 (Jun., 1979), pp. 420-422