British journal Economica is currently listing one of my papers (with Simon Grant) as its feature article on its website. I’m very happy about this, since the paper makes what I think is one of my most important policy arguments, that the discount rate for public investment should be less than the rate of return demanded by private equity investors in comparable projects.
I’d be interested to debate this point with readers, but please have a look at the article first – you don’t need to go through all the algebra to get the main point.
John Quiggin 
john: wow, what a lot of algebra to digest over the morning cup of coffee! The article got me thinking over a few issues:
until now I had not been at all attracted to Mark Latham’s musings about government grants aimed at extending share ownership; your section on human capital and risk made me rethink. Share ownership could be a useful insurance mechanism. One concern would be that employers would put pressure on employees to invest in their own firm with precisely the opposite effect to risk spreading: I’ve not come across this particular wrinkle in the discussions of the Latham proposal
on the issue of government investment, surely the critical point you make is whether in practice the efficiency losses from government ownership outweigh the gains from public investment – something which needs more empirical study. The case for government investment is stronger, as the article notes, in projects with natural monopoly characteristics. One concern I have is that the idiosyncratic institutional framework of different countries might yield different results, so studies in any one country can’t be extrapolated to the model as a whole (eg Singapore has a thriving set of government investments in all sorts of corporations – but is their experience comparable with countries with different patterns of savings and investment, government intervention and business relationships? I think not – although happy to argue the point with other readers).
Well, I got to page 3 and that was enough for me. I’ll take your word for it.
Does this constiitute a defence of Fannie Mae?
Fannie Mae raises some more complex issues, but the analysis does supply a defence of the Clinton proposal to invest Social Security funds in stocks as well as bonds. This is spelt out here:
Grant, S. and Quiggin, J. (2002), ÎThe risk premium for equity: implications for the proposed diversification of the social security fundâ, American Economic Review, 92(5), 1104ö15.
Scott, thanks for pushing as far as page 3 !