Sunday, November 04, 2007

Positive Externality

In response to my earlier commentary on infrastructure investment, a loyal reader to this blog Ming wrote:

I think the problem of infrastructures are even worse than SOEs.For SOEs, people aware of their ongoing financial burden on the government. For infrastructures, they call them "investment" which generate "postive externality". You can never say they are in deficit.

Indeed, positive externality has been used by the HK government to justify many of its so called infrastructure investments. HK Disneyland is a prime example where government investment was justified on the ground of positive externality. Read more here.

The sad fact is that the government never explains how private actors fail to internalize the externality before getting its visible hand got involved in the first place.

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