PRIVATE AND PUBLIC INVESTMENT      

Yet another important classification of the investment may be into the private investment and the public investment, on the basis of who makes the investment. Today, a large part of the total investment is made by the government even in the so called western capitalist economics. The criteria for investment in the public sector is mostly influenced by the political and social considerations. The government often invests in projects like schools, colleges, hospital, roads, dams, electricity, gas, water, transportation, housing etc., to provide free, subsidized or break even (no profit-no loss basis) services to the public. Such investment may be made by the public authorities like the central government, the state governments, the local authorities, the public corporations, etc., in purchasing the capital goods. For them, even the profits offering services are influenced by the interest of the society.

In the case of public investment, it is not possible to compare the revenue with the investment costs of the projects. The public investment decision to select the most worthwhile projects out of various (desirable) projects is based on the cost-benefit analysis. For this purpose, we have to assess the social benefits and the social costs of the proposed investments. Social benefits refer to the satisfaction enjoyed by the whole community, not fully revealed in the revenues earned by an enterprise. For example, the social benefits derived by the university teachers from the housing facilities provided by the government far exceed the revenue. Similarly, social costs to the society due to air, water and noise pollutions caused by a public sector enterprise cannot be ignored while evaluating the real costs of the public investment.

Though the public investment is motivated by the public welfare, the private investment on the purchase of capital goods like plant, machinery, factories, offices, godowns, shop, etc. is stimulated by the profit motive. The private entrepreneur will invest only when they expect a satisfactory return on a project. The expected income from the capital asset together with itspurchase price determine the marginal efficiency of the capital. It is worthwhile to invest, so long as the marginal efficiency of capital is more than the market rate of interest.



For more help in Private and Public Investment please click the button below to submit your homework assignment.