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The Arrow-Lind Theorem in a Continuum Economy

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  • Gardner, Roy

Abstract

In their stimulating contribution to the theory of cost-benefit analysis, Arrow and Lind showed that "when the risks associated with a public investment are publicly borne, the total cost of risk bearing is insignificant and, therefore, the government should ignore uncertainty in evaluating public investments... This result is obtained not because the government is able to pool investments but because the government distributes the risk associated with any investment among a large number of people. It is the risk-spreading aspect of government investment that is essential to this result." Arrow and Lind proved their result from an asymptotic point of view, letting the number of taxpayers grow infinitely large.
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  • Gardner, Roy, 1979. "The Arrow-Lind Theorem in a Continuum Economy," American Economic Review, American Economic Association, vol. 69(3), pages 420-422, June.
    • Handle: RePEc:aea:aecrev:v:69:y:1979:i:3:p:420-22
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    1. Kenneth J. Arrow & Robert C. Lind, 1974. "Uncertainty and the Evaluation of Public Investment Decisions," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 3, pages 54-75, Palgrave Macmillan.
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    1. Ghesquiere, Francis & Mahul, Olivier, 2007. "Sovereign natural disaster insurance for developing countries : a paradigm shift in catastrophe risk financing," Policy Research Working Paper Series 4345, The World Bank.
    2. Gozzi, Juan Carlos & Schmukler, Sergio, 2016. "Public Credit Guarantees and Access to Finance," Economic Research Papers 269324, University of Warwick - Department of Economics.
    3. Jock R. Anderson, 1983. "On Risk Deductions In Public Project Appraisal," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 27(3), pages 231-239, December.
    4. Dionne, Georges, 1981. "Le risque moral et la sélection adverse : une revue critique de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 57(2), pages 193-224, avril-jui.
    5. Anderson, J.R., 1989. "Forecasting, uncertainty, and public project appraisal," Policy Research Working Paper Series 154, The World Bank.
    6. Spackman, Michael, 2002. "Public-private partnerships: lessons from the British approach," Economic Systems, Elsevier, vol. 26(3), pages 283-301, September.

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