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Managing Government Exposure to Private Infrastructure Risks

  • Irwin, Timothy
  • Klein, Michael
  • Perry, Guillermo E.
  • Thobani, Mateen

The privatization of infrastructure should lead to the development of new infrastructure, improvements in the operation of existing infrastructure, and a reduction in budgetary subsidies. Whether countries reap the full benefits of privatization, however, depends on how risks are allocated. If as is often the case in developing countries, governments assume risks that should be borne by investors, they may reduce incentives for efficiency and incur significant liabilities. To solve these problems, governments need to improve their policies and restrict their risk bearing to certain political and regulatory risks over which they have direct control. When a government provides guarantees, it should attempt to measure their cost and improve the way they are handled in the accounts and budgets. Measurement and budgeting are critical to improving decisions about the provision of guarantees, to improving project selection and contract design, and to protecting governments from unknowingly entering into commitments that might jeopardize future budgets. Copyright 1999 by Oxford University Press.

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Article provided by World Bank Group in its journal World Bank Research Observer.

Volume (Year): 14 (1999)
Issue (Month): 2 (August)
Pages: 229-45

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Handle: RePEc:oup:wbrobs:v:14:y:1999:i:2:p:229-45
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  1. Klein, Michael, 1997. "Managing guarantee programs in support of infrastructure investment," Policy Research Working Paper Series 1812, The World Bank.
  2. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
  3. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
  4. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Infraestructure Franchising and Government Guarantees," Documentos de Trabajo 29, Centro de Economía Aplicada, Universidad de Chile.
  5. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
  6. Merton, Robert C., 1977. "On the cost of deposit insurance when there are surveillance costs," Working papers 903-77., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Ellis J. Juan, 1996. "Privatizing Airports-Options and Case Studies," World Bank Other Operational Studies 11621, The World Bank.
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