Abstract
In this paper, we analyze the consequences of delays and cost overruns typically
associated with the provision of public infrastructure in the context of a growing economy.
Our results indicate that uncertainty about the arrival of public capital can more
than offset its positive spillovers for private-sector productivity. In a decentralized
economy, unanticipated delays in the provision of public capital generate too much
consumption and too little private investment relative to the first-best optimum. The
characterization of the first-best optimum is also affected: facing delays in the arrival
of public goods, a social planner allocates more resources to private investment and
less to consumption relative to the first-best outcome in the canonical model (without
delays). The presence of delays also lowers equilibrium growth, and leads to a diverging
growth path relative to that implied by the canonical model. This suggests that delays
in public capital provision may be a potential determinant of cross-country differences
in income and economic growth.