Public investment under ethnic diversity and political uncertainty

This paper addresses the puzzle that public services in some developing countries,
especially in Africa, are poor despite large public expenditure. The intertemporal
model here studies a government’s optimal choice between redistribution and public
investment. Ethnic diversity and political uncertainty reinforce one another in
producing myopic government behaviour which results in underinvestment. Above some critical value of political instability, it is optimal for the government not to invest at all.