ABSTRACT
The crux of the difference between the two camps was already well-understood at the time. For instance, Sandmo (1972) writes that the Hirshleifer view can be reconciled with Arrow and Lind’s conclusions only by recognizing that:
Sandmo goes on to note that for the modern economies of Europe and the US, Hirshleifer’s view is likely the more plausible. Importantly, he observes that the contributions of Sharpe (1964), Lintner (1965), and Modigliani and Miller (1958) – a body of work that forms the underpinning of modern financial economics – are highly relevant to this debate but rarely cited in the context of public investment.
