Privatization Decision and Civil Engineering Projects

Abstract

Most of the benefits from infrastructure privatization will occur in the selection/design and operation/maintenance phases, not in the construction phase. These benefits accrue from the private sector's greater innovation and cost-efficiencies. The selection/design phase benefits flow mostly from innovation. The benefits from the operation/maintenance phase are from both innovation and cost-efficiencies depending on the type of privatization. Greater innovation and possibly greater cost-efficiency benefits will come from ownership transfer rather than contracting out operation and maintenance. The civil engineer has a good feel for which projects could reap the greatest benefits and how to conduct the bid process to maximize those benefits. However, the policy maker must consider important factors like the public's expectation of the government's responsibility, the environmental impact, and the following trade-offs: investment encouraged by long-term time horizons versus competition among private firms; profit induced benefits versus regulation of monopoly prices; and achieving economies of scale versus conflicts over control among local authorities.