Governments are increasingly turning to the private sector to carry out infrastructure investment. This paper looks at the differences in timing decisions between the private firm and the public planner for investment projects involving large sunk costs in growing markets. The paper shows that competition in the private sector will drive firms to invest earlier than the socially preferred date whilst a low ratio of private (producer) to public (producer plus consumer) benefits will cause them to delay relative to the socially preferred date. The paper looks at policy instruments such as selling franchises, limiting the franchise length, encouraging new entry and price regulation for altering the private sector's timing decision. (Author/publisher).
Samenvatting