A neglected area of cost-benefit theory is the evaluation of federal government loans Abstract to finance private investment. This article builds on a model by Feldstein (1973)
which disaggregated public investment decisions into two parts; one is the expenditure on the good to be purchased by the loan, and the other is the loan itself. The
main new result is that distributional considerations can be divorced from economic
efficiency in making the first (expenditure) decision. Distributional factors are used
to help determine the second (financing) decision. The two-decision framework is
applied to FmHA loans made in New York State.
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