Internal rents and the ownership of state properties: experiences from Sweden

Purpose – The purpose of this paper is to show that general‐ and special‐purpose properties have to be dealt with differently by the public sector. Design/methodology/approach – Application of standard economic theory concerning pricing of properties and infrastructure. The issues are analyzed based on experiences from Swedish state‐owned properties. Findings – The distinction results in quite different public property management strategies. Special‐purpose properties have no short‐run alternative use and have limited rental and capital values, unlike general‐purpose properties. Thus, to apply a required rate of return based on assumed capital values universally will lead to inefficient use. For special‐purpose properties, short‐run marginal costs (SRMCs) should be charged – no more. Practical implications – General properties owned by the state represent a suitable case for privatization. For special‐purpose properties, only SRMCs should be charged. Originality/value – The paper makes a distinction between two kinds of state‐owned properties; general‐ and special‐purpose properties, and analyzes the important consequences in property management.