CXO

Public And Private Financing Of Infrastructure

Date Added: Jan 2011
Format: PDF

The paper considers what the core market failures in infrastructure are, focusing on the gap between marginal and average costs, the system nature of infrastructures, and the time inconsistency problem. The difficulty for government in providing credible commitments to investors in respect of the fixed and sunk costs is the classic problem in contract and institutional design. The roles of government and the private sector are defined, and the paper proposes that the concept of Regulatory Asset Bases (RABs) developed in privatised-utility models provides a way of cementing in commitment and hence ensuring that regulatory and political risk is appropriately allocated.