Capital-Intensive Projects Induce More Effort than Labor-Intensive Projects

Central governments often subsidize capital spending by local gov- ernments, instead of subsidizing operating expenses or labor-intensive projects. This paper oers one explanation, focusing on the incentive eects for local o¢ cials— a local o¢ cial can more easily shift the cost of optimizing a project to his successor on a labor-intensive project than on a capital-intensive project.