ABSTRACT
Arrow and Lind’s classic paper ‘Uncertainty and the Evaluation of Public Investment Decisions’ (1970; hereafter, often abbreviated as ‘A-L’) has been a point of reference in the discussion about the efficiency of public vs. private financing and risk bearing (Clark et al. 2002; Grimsey & Lewis, 2004; Grout, 2003; Gurenko & Lester, 2005; Jenkinson, 2003). One of the direct consequences of A-L theorem is that public investments should be discounted at a lower rate than private investments and that catastrophic risks should be borne by the public sector. I revisit the Arrow and Lind’s contribution in the light of the 2008-2009 financial crisis, from the perspective of the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act (ARRA). The question is whether A-L economic theory validates the government’s actions involving the use of public funds to bail out near-bankrupt businesses.
