The Public-Sector Cost of Capital: An Empirical Test of Peltzman's Conjecture

14 Pages Posted: 24 Apr 2019 Last revised: 20 Jul 2020

See all articles by Marian W. Moszoro

Marian W. Moszoro

Warsaw School of Economics (SGH); International Monetary Fund (IMF); George Mason University - Department of Economics; George Mason University - Interdisciplinary Center for Economic Science (ICES)

Date Written: July 4, 2020

Abstract

I test whether public-sector ownership reduces conventional measures of market risk by using an exogenous event to the air transportation industry. I find that government-sponsored enterprises show lower price volatility than non-government-sponsored enterprises, arguably due to the government’s ability to buffer government-sponsored enterprises against demand and cost shocks (Peltzman 1976). The upshot for jurisdictions with fiscal space is that cash flows under public-sector provision should be discounted at a lower rate than cash flows under private-sector provision.

Keywords: Regulation, Utilities, Cost of Capital

JEL Classification: L51, L32, G32

Suggested Citation

Moszoro, Marian W., The Public-Sector Cost of Capital: An Empirical Test of Peltzman's Conjecture (July 4, 2020). GMU Working Paper in Economics No. 19-17, Available at SSRN: https://ssrn.com/abstract=3359685 or http://dx.doi.org/10.2139/ssrn.3359685

Marian W. Moszoro (Contact Author)

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
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HOME PAGE: http://economics.gmu.edu/people/mmoszoro

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

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Fairfax, VA 22030
United States

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