Why do politicians distort publicinvestments? And given that public investments are poor,because presumably that is what is politically rational,what types of reforms are likely to be both Efficiencyimproving and compatible with the interests of politicians?This chapter explores these two questions in the context ofMongolia. It argues that Mongolian members of parliament MPshave an incentive to over spend on smaller projects thatbring benefits to specific geographical localities and tounder spend on large infrastructure that will bring economicbenefits to Mongolia on the whole. The incentive for theformer is that MPs internalize the political benefits fromthe provision of particular, targeted benefits to specificcommunities.This chapter is inductive in its structure.First, the broader public expenditure patterns in Mongoliaare analyzed in order to identify policy maker s prioritiesthat are, revealed preferences. Then the public investmentmanagement system is examined in depth, identifying the mainTechnical and structural weaknesses in the system. Followingthat is an analysis of the interests of Key political actorsthat are served by poor investments. Given these politicalincentives, the final section proposes some incentivecompatible reform options.
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