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Investment Appraisal in the Public Sector

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

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.

Suggested Citation

  • Brealey, R A & Cooper, I A & Habib, M A, 1997. "Investment Appraisal in the Public Sector," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 12-28, Winter.
  • Handle: RePEc:oup:oxford:v:13:y:1997:i:4:p:12-28
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    Cited by:

    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
    2. Michael Spackman, 2013. "Government Time Discounting and Required Rates of Return: UK History and Current Issues," Economic Affairs, Wiley Blackwell, vol. 33(2), pages 190-206, June.
    3. Grout, Paul A., 2005. "Value-for-money measurement in public-private partnerships," EIB Papers 7/2005, European Investment Bank, Economics Department.
    4. Miranda Sarmento, J. & Renneboog, L.D.R., 2014. "Public-Private Partnerships : Risk Allocation and Value for Money," Discussion Paper 2014-017, Tilburg University, Tilburg Law and Economic Center.
    5. Paul A. Grout, 2003. "Public and Private Sector Discount Rates in Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages 62-68, March.
    6. 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 - Leibniz Institute for Economic Research at the University of Munich, vol. 59(24), pages 03-16, December.
    7. Marian MOSZORO, 2014. "Efficient Public-Private Capital Structures," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(1), pages 103-126, March.
    8. 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;The Industrial Organization Society, vol. 29(1), pages 93-126, September.
    9. Miranda Sarmento, J.J., 2014. "Public private partnerships," Other publications TiSEM c7d4c978-234c-4f88-83ed-1, Tilburg University, School of Economics and Management.
    10. 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.
    11. Valila, Timo, 2005. "How expensive are cost savings? On the economics of public-private partnerships," EIB Papers 4/2005, European Investment Bank, Economics Department.
    12. Claude Montmarquette & Iain Scott, 2007. "Taux d'actualisation pour l'évaluation des investissements publics au Québec," CIRANO Project Reports 2007rp-02, CIRANO.
    13. 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.
    14. Chris Chan & Danny Forwood & Heather Roper & Chris Sayers, 2009. "Public Infrastructure Financing: An International Perspective," Staff Working Papers 0902, Productivity Commission, Government of Australia.

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