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Public and Private Sector Discount Rates in Public-Private Partnerships

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  • Paul A. Grout

    (University of Bristol)

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    Abstract

    Whether public sector projects should be discounted at a lower rate than private sector projects is highly contentious. This paper assesses the appropriate private and public sector discount rates in the context of public private partnerships. It shows that there are powerful arguments for using a higher rate to discount private projects than public sector projects and that failure to recognise this may lead to excessive reliance on public provision. However, the reason for the divergence is not related to the conventional incomplete market arguments in the literature. The results may have far broader implications for private sector involvement in public services. Copyright Royal Economic Society 2003

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal Economic Journal.

    Volume (Year): 113 (2003)
    Issue (Month): 486 (March)
    Pages: C62-C68

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    Handle: RePEc:ecj:econjl:v:113:y:2003:i:486:p:c62-c68

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    Cited by:
    1. Tan, Zhijia & Yang, Hai, 2012. "The impact of user heterogeneity on road franchising," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 958-975.
    2. Claude Montmarquette & Iain Scott, 2007. "Taux d’actualisation pour l’évaluation des investissements publics au Québec," CIRANO Project Reports 2007rp-02, CIRANO.
    3. Athena Roumboutsos, 2010. "Sustainability, Social Discount Rates and the Selection of Project Procurement Method," International Advances in Economic Research, Springer, vol. 16(2), pages 165-174, May.
    4. Grout, P.A.Paul A. & Jenkins, Andrew & Zalewska, Anna, 2004. "Privatisation of utilities and the asset value problem," European Economic Review, Elsevier, vol. 48(4), pages 927-941, August.
    5. Tan, Zhijia & Yang, Hai, 2012. "Flexible build-operate-transfer contracts for road franchising under demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1419-1439.
    6. Paul Grout & Silvia Sonderegger, 2006. "Simple money-based tests for choosing between private and public delivery: a discussion of the issues," Review of Industrial Organization, Springer, vol. 29(1), pages 93-126, September.
    7. Michael Spackman, 2011. "Government discounting controversies: changing prices, opportunity costs and systematic risk," Grantham Research Institute on Climate Change and the Environment Working Papers 67, Grantham Research Institute on Climate Change and the Environment.
    8. Paul A Grout & Margaret Stevens, 2003. "Financing and Managing Public Services: An Assessment," The Centre for Market and Public Organisation 03/076, Department of Economics, University of Bristol, UK.
    9. Fandel, Günter & Giese, Anke & Mohn, Brigitte, 2012. "Measuring synergy effects of a Public Social Private Partnership (PSPP) project," International Journal of Production Economics, Elsevier, vol. 140(2), pages 815-824.
    10. Paolo Balduzzi, 2006. "Models of Partnerships," Working Papers 96, University of Milano-Bicocca, Department of Economics, revised May 2006.

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