Public-Sector Cost of Capital: An Empirical Test of Peltzman’s Conjecture
10 Pages Posted: 24 Apr 2019 Last revised: 29 Jul 2019
Date Written: July 25, 2019
I test whether public-sector ownership in regulated industries reduces conventional measures of risk utilizing an exogenous event to the air transportation industry. I find that government-sponsored enterprises show significantly lower price volatility than non-government-sponsored enterprises. The upshot for governments with long-term neutral fiscal policy is that public services' 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: Suggested Citation