Building and Managing Facilities for Public Services

We model alternative institutional arrangements for building and managing facilities for provision of public services, including the use of the Private Finance Initiative (PFI), by exploring the effects on innovative investment activity by providers. The desirability of bundling the building and management operations is analyzed, and it is considered whether it is optimal to allocate ownership to the public or the private sector. We also examine how the case for PFI is affected by the (voluntary or automatic) transfer of ownership from the private to the public sector when the contract expires. Asset specificity and service-demand risk play critical roles.