Permits to elicit information
By: Erzo F. P. Luttmer, Richard J. Zeckhauser, and Carolyn Kousky
Contributors: Zeckhauser, Richard; Kousky, Carolyn; John F. Kennedy School of Government
Series: Faculty research working papers series -- RWP06-049; Faculty research working paper series -- RWP06-049
Publisher: John F. Kennedy School of Government, Harvard University
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 15
Subjects: Infrastructure (Economics); Public works; Economic development; Commercial law
Description: This paper identifies a novel function for permits: they can be used by the government as an instrument to elicit information about the intentions of private investors to put capital into an area. Such information is a crucial input for the government's decision on how much infrastructure to build in an area, such as the capacity of an elementary school or a public transit system in an expanding community. Decisions on infrastructure that protects against natural disasters require precisely this information. For example, a levee should be built higher and stronger the more capital it will protect. Current experience in New Orleans makes this evident, particularly given the considerable uncertainties about the private sector's intention of returning to or investing in areas at risk. Permits can replace unreliable "cheap talk" elicitation devices, such as surveys or town meetings, and can be used as an input into prediction or futures markets. An important innovation in our procedure is to use markets to elicit information separately from hedgers (the investors in our model) and speculators.
Notes: "December 2006."

Includes bibliographical references (p. 14-15).