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Infrastructure and infrastructure finance: The role of the government and the private sector in the current world

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  • Helm, Dieter

    ()
    (University of Oxford)

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    Abstract

    Europe faces major investment in infrastructure in the coming decade in the context of the credit crisis and the broader economic crisis that followed. The article considers what the core market failures in infrastructure are, focussing 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 article 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. As a consequence, the financial structure of infrastructure investments can be determined, with debt playing the primary role in respect of the RABs, and equity in respect of the creation of new Infrastructure.

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    File URL: http://www.eib.org/attachments/efs/eibpapers/eibpapers_2010_v15_n02_en.pdf#page=10
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    Bibliographic Info

    Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 5/2010.

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    Length: 20 pages
    Date of creation: 17 Dec 2010
    Date of revision:
    Handle: RePEc:ris:eibpap:2010_005

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    Related research

    Keywords: Network infrastructure; Public goods; Utilities; Government policy; Cost of debt; Sunk costs; Regulated asset base; Public-Private Partnerships;

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    1. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
    2. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports 2000/2, European Investment Bank, Economics Department.
    3. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports 2002/2, European Investment Bank, Economics Department.
    4. Briceno-Garmendia, Cecilia & Estache, Antonio & Shafik, Nemat, 2004. "Infrastructure services in developing countries : access, quality, costs and policy reform," Policy Research Working Paper Series 3468, The World Bank.
    5. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports 2002/1, European Investment Bank, Economics Department.
    6. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
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