Public-Private Partnerships and the Future of US Infrastructure

This chapter focuses on an institutional setup that began to emerge in the United States (US) late in the 20th century, the public-private partnership. It draws on research examining available evidence about the successes and limitations of P3s in the US market that is currently underway at George Mason University’s Center for Transportation Public-Private Partnership Policy. The essential features of the P3 approach relate to how project risks are allocated between the public and the private sector. The underlying theory behind P3s is risk alignment, that is, the allocation of risk to the party most able to manage it effectively. The appropriate basis for comparing the cost of capital between P3s and government-financed projects has been a matter of considerable and ongoing debate. The cost of capital raised through tax-free municipal bonds is generally lower than the cost of capital raised from equity investors or taxable debit.