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Article Excerpt
Abstract
Public or fiscal policy is sometimes concerned with the provision of some infrastructure. This paper deals with the specification of such infrastructures as public inputs. Among other things, and in contrast to relevant literature, it is shown that there is no identity between various public inputs concepts. Thus, the results help to avoid misspecifications and may contribute to better public policy designs concerning the provision of infrastructures. (JEL H41, D62)
Introduction
To improve a region's trade position, its perspectives in a fiscal competition environment or its growth potential, public policy may be concerned with the provision of some infrastructure. These infrastructures are usually modelled as public inputs. Hence, the adequate specification of public inputs matters for the quality of the public policy design. Yet, relevant literature exhibits some fallacies regarding the specification of public inputs [Colombier and Pickhardt, 2002]. In this context, the purpose of this paper is to show that contrary to what is stated in relevant literature, there is no identity between various public input concepts.
In fact, in relevant literature, three different public input specifications, i.e., a semipublic input, a firm-augmenting public input, and an unpaid factor are regarded as being identical. For example, a semi-public input is an input, which is specified as being non-rival between industries but congestible and therefore rival within an industry [Tawada, 1980, p. 1006]. With regard to inputs, non-rivalry means that more than one production unit can simultaneously use the same amount of the input [Kaizuka, 1965, p. 119]. It is assumed that the semi-public input complies with a production externality of Meade [1952, pp. 56-57], the unpaid factor, which is seen as a congestion case [Negishi, 1973, p. 233; 1976, pp. 90-91]. Therefore, a semi-public input is also denoted as an unpaid factor [Negishi, 1973, p. 233]. As for Meade's unpaid factor, it is assumed that the production function of the industry and of each firm in this industry exhibits constant returns to scale if a semi-public input is used [Tawada, 1980, p. 1006; Feehan, 1989, p. 243].
At the same time, another specification of a public input, a firm-augmenting public input, is set equal to Meade's unpaid factor [Manning and McMillan, 1982, p. 120]. Accordingly, constant returns to scale in the production function of the industry and of each firm are assumed not only for the semi-public input but also for the firm-augmenting case [Hillman, 1978, p. 271]. Thus, in contrast to a semi-public input, a firm-augmenting public input is non-rival across the firms in an industry. However, since a firm-augmenting public input is rival within a firm, the available amount of the firm-augmenting public input must be allocated among the primary factors (labor and capital) employed in the firm [McMillan, 1979, p. 294]. Hence, the production function of the industry and a firm...
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