Institutional Economics and the Cost of Capital for Infrastructure Projects. Issue 2 (3rd April 2022)

• Record Type: Journal Article
• Authors: Geddes, R. Richard; Goldman, Joshua
• Is Part Of: Journal of economic policy reform. Volume 25:Issue 2(2022)
• Page Start: 85
• Page End: 102
• Publication Date: 2022-04-03
• Subjects: Cost of capital -- public-private partnerships -- infrastructure -- Arrow-Lind Theorem -- agency problems -- risk sharing -- risk spreading -- corporate governance; H11 -- H21; Economic policy -- Periodicals; Commercial policy -- Periodicals; Monetary policy -- Periodicals; International trade -- Periodicals; Developing countries -- Economic policy -- Periodicals; Former Soviet republics -- Economic policy -- Periodicals; Post-communism -- Periodicals; Policy sciences -- Periodicals; 338.9
• DOI: 10.1080/17487870.2020.1768856
• Languages: English
• ISSNs: 1748-7870

Abstract

ABSTRACT: The growing use of public-private partnerships (PPPs) in infrastructure delivery has rekindled the public versus private cost-of-capital debate. Early debate concluded that the social cost of public-sector capital is below that of private capital because risk can be spread across numerous taxpayers. Intervening research focused on the agency costs that arise due to increased separation between equity holders and managers and the various mechanisms to control those agency costs. We analyze differences in public versus private residual claims and their associated agency costs. We conclude that earlier discussions that omitted agency-cost analysis should be revisited.