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Competition and the State$
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D. Daniel Sokol, Thomas K. Cheng, and Ioannis Lianos

Print publication date: 2014

Print ISBN-13: 9780804789394

Published to Stanford Scholarship Online: September 2014

DOI: 10.11126/stanford/9780804789394.001.0001

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PRINTED FROM STANFORD SCHOLARSHIP ONLINE (www.stanford.universitypressscholarship.com). (c) Copyright Stanford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in SSO for personal use.date: 19 October 2019

Competition Issues and Private Infrastructure Investment through Public-Private Partnerships

Competition Issues and Private Infrastructure Investment through Public-Private Partnerships

Chapter:
(p.56) Chapter 3 Competition Issues and Private Infrastructure Investment through Public-Private Partnerships
Source:
Competition and the State
Author(s):

R. Richard Geddes

Publisher:
Stanford University Press
DOI:10.11126/stanford/9780804789394.003.0004

This chapter discusses how the use of public-private partnerships (PPPs) to provide critical infrastructure is rising in the United States. One of the main arguments in favor of public provision, however, is that the public sector enjoys a lower social cost of capital relative to the private sector. This view is false. The legal and organizational arrangements surrounding private investor risk bearing results in a lower private-sector cost of capital. The inability of taxpayers, as risk bearers of public investment, to exit implies that they are obligated to provide uncompensated risk-bearing services. Unpriced taxpayer risk bearing artificially lowers the public sector's cost of capital. This raises important competition issues. To ensure competitive neutrality—so government-bestowed benefits do not result in unfair competition—the cost of taxpayer-provided risk-bearing services should be included in comparisons of public versus private infrastructure provision.

Keywords:   infrastructure, public-private partnerships, cost of capital, public-sector comparator, captive equity, institutions, residual claims

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