The U.S. Office of Management and Budget (OMB) recommends that the government use different discount rates for public investments than for the sale of government assets. For public investments, the OMB suggests a discount rate that reflects the historical pretax rate of return on private investments, while for the sale of government assets, the OMB recommends using the cost of government borrowing as a discount rate. Why might the OMB make this distinction?
Answer to relevant QuestionsThe city of Animal town plans to build a new bridge across the river separating the two halves of the city for use by its residents. It is considering two plans for financing this bridge. Plan A calls for the bridge to be ...The preference revelation problem associated with Lindahl pricing becomes more severe as the number of people in society increases. Why do you think this is true? Figlio (1999) found that legislators are more likely to mirror their constituents’ preferences during election years than in earlier years of their terms. This is particularly true for relatively inexperienced legislators. ...Why does the Tiebout model solve the problems with preference revelation that are present with Lindahl pricing? The state of Delaland has two types of town. Type A towns are well-to-do, and type Browns are much poorer. Being wealthier, type A towns have more resources to spend on education; their demand curve for education is Q = 100 ...
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