Private versus Public Ownership of Constructed Facilities

Abstract

The ownership arrangements for constructed facilities not only generate the capital and requirements for new facilities, but also influence the management of the construction and operation of these facilities. While it is difficult to conclude definitely that one or another organizational or finanacial arrangement is always superior, different organizations have systematically chosen the ways in which constructed facilities are financed, designed and constructed. Moreover, the selection of alternative investments for constructed facilities is likely to be affected by the type and scope of the decision‐making organization. Some of these systematic differences, particularly with regard to public versus private organizations are considered. An extended example shows that tax shields, high public borrowing costs and private financial leverage may be sufficiently advantageous for private firms to overcome the effects of partial capital subsidies and lower required rates of return for public organizations. Thus, private ownership and operation of infrastructure may prove to be a desirable social alternative to public ownership under some circumstances, even without considering differences in the efficiency of operation.