Transaction Costs in Private Infrastructure Projects—Are They Too High?

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Does the cost of developing private infrastructure projects undermines their very rationale—the cost-effective provision of service?

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Description

The World Bank Group, October 1996.

Executive Summary

Although the number of private infrastructure projects continues to grow, tales of endless delays and exorbitant development costs still scare both developers and governments. These costs probably amount on average to some 5 to 10 percent of total project cost—or some US$2 billion to US$3 billion a year, assuming that investments worldwide exceed US$35 billion a year. Most of these costs ultimately will be borne by consumers and taxpayers, although investors may have to swallow the consequences of serious miscalculations. The question is whether the cost of developing private infrastructure projects undermines their very rationale—the cost-effective provision of service. To answer this question, this Note assesses the broad magnitude of the costs and the factors driving them.