The Managerial Analysis of Public Infrastructure Investment Policies

Abstract

The issue of investment processes whereby financial resources are allocated “a fonds perdus”, has not yet received much serious attention in the management or economics literature. Allocating resources “a fonds perdus” implies that no actor is deemed directly responsible for the production activities (and their outputs), which result from investment decisions. In other words, neither the decision makers, nor the economic actors who will benefit from an investment must bear clear responsibilities for the actual outputs generated by the investment. The traditional literature on project evaluation, whether for private or public organizations, implicitly assumes that the results of a private investment analysis or social cost benefit analysis for a number of projects will guide the behaviour of decision makers because these decision makers would benefit themselves from choosing the “best” projects. In reality, of course, this is not the case if resources are allocated “a fonds perdus”. If no one is a) directly rewarded for choosing the projects with, e.g., the highest expected profitability or net social benefits, or b) sanctioned for choosing projects with lower expected profitability or net social benefits, there is no reason to assume a priori that decision makers would actually prefer the best ranked projects according to an investment analysis.