Rates of return on nebulous investments are at the heart of figuring out finance, new growth, and how we should reward entrepreneurs and patent-holders.
Tyler Cowen has read Noel Maurer and Carlos Yu’s The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal. He notes the authors estimate:
… Aa social rate of return of nine percent for the first two decades of the canal's existence and they do include the costs of defending it.
That return would be real, but it corresponds to nominal rates of 9% in the 20’s (much worse than stock) and 7% in the 30’s (much better than stocks).
I tend to doubt you could raise money these days for a physical project of this scale that would only return 9%.
Hmmm, if memory serves, corporations generally look for payback of 20% per year on direct investment.
Other hand ... during WW II, the US (and its allies) could move ships from say Florida to Southern California in about a week in generally temperate climate. German and Japanese ships wanting to make similar voyages would have spent a month or so rounding South America. Hard to put a dollar figure on that, but I'd not say it was worthless.
Posted by: mike shupp | July 13, 2012 at 09:32 AM
The rate threshold used depends on the breadth of the asset class it's based on (ROI, ROE, ROA, and so on).
Also, the required rate is inflated by the riskiness of the investment.
Good point about the War though ...
Posted by: Dave Tufte | July 16, 2012 at 03:52 PM