Infrastructure and infrastructure finance: The role of the government and the private sector in the current world
AbstractEurope 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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Bibliographic InfoPaper provided by European Investment Bank, Economics Department in its series EIB Papers with number 5/2010.
Length: 20 pages
Date of creation: 17 Dec 2010
Date of revision:
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Network infrastructure; Public goods; Utilities; Government policy; Cost of debt; Sunk costs; Regulated asset base; Public-Private Partnerships;
Find related papers by JEL classification:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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