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Investment Appraisal in the Public Sector

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  • Brealey, R A
  • Cooper, I A
  • Habib, M A
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    Abstract

    Recent developments, such as privatization and the private finance initiative, have raised the issue of which assets should be owned by the public sector and whether assets have different values in the public and private sectors. In order to answer these questions, we first note that the allocative considerations that usually motivate government intervention need not require the direct provision of services by the government using government-owned assets. We then argue that the government should own the assets used to provide the services where the private sector fears expropriation by the government, or where ownership confers on the private sector such power as to preclude efficient allocations. Finally, we argue that the discount rate for governments' projects equals the expected return on comparable investments in the capital markets. The government should, however, discount pre tax cash flows at the pre-tax discount rate, for it receives all tax revenues. Copyright 1997 by Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

    Volume (Year): 13 (1997)
    Issue (Month): 4 (Winter)
    Pages: 12-28

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    Handle: RePEc:oup:oxford:v:13:y:1997:i:4:p:12-28

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    Web page: http://oxrep.oupjournals.org/

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    Cited by:
    1. Gerold Krause-Junk & Frank Littwin & Dietrich Budäus & Birgit Grüb & Lars P. Feld & Jan Schnellenbach, 2006. "Public-Private Partnership: Allheilmittel für die Finanzkrisen der öffentlichen Haushalte oder Risikofaktor?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 59(24), pages 03-16, December.
    2. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2008. "The Basic Public Finance of Public-Private Partnerships," Working Papers 35, Yale University, Department of Economics.
    3. Chris Chan & Danny Forwood & Heather Roper & Chris Sayers, 2009. "Public Infrastructure Financing: An International Perspective," Staff Working Papers 0902, Productivity Commission, Government of Australia.
    4. 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.
    5. M.G. Pollitt, 2000. "The Declining Role of the State in Infrastructure Investments in the UK," Cambridge Working Papers in Economics 0001, Faculty of Economics, University of Cambridge.
    6. Claude Montmarquette & Iain Scott, 2007. "Taux d’actualisation pour l’évaluation des investissements publics au Québec," CIRANO Project Reports 2007rp-02, CIRANO.
    7. Paul Grout, 2002. "Public and Private Sector Discount Rates in Public-Private Partnerships," The Centre for Market and Public Organisation 02/059, Department of Economics, University of Bristol, UK.
    8. Valila, Timo, 2005. "How expensive are cost savings? On the economics of public-private partnerships," EIB Papers 4/2005, European Investment Bank, Economics Department.
    9. Grout, Paul A., 2005. "Value-for-money measurement in public-private partnerships," EIB Papers 7/2005, European Investment Bank, Economics Department.
    10. Nina Budina & Hana Polackova Brixi & Timothy Irwin, 2007. "Public-Private Partnerships in the New EU Member States," World Bank Publications, The World Bank, number 6743.

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