This paper uses a case study based on a Swedish National Road Administration project to show a government authority facing appropriations that are insufficient to make the construction of all welfare improving investments possible. Some private agent offers the authority a specified amount of money (less than 100 per cent of total costs) to have a particular investment implemented. Accepting this offer means that investments with superior rates of return would be crowded out from the initial plan. The paper demonstrates the conditions under which it is still welfare improving for the authority to accept such offers. Furthermore, the possibility of introducing private contributions as a complementary way to fund public investments on a voluntary basis are considered. Information aspects of voluntary funding and some distributional considerations are also discussed.(Author/publisher).
Abstract