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THIS VERSION: MARCH 5, 1996 PRIVATE SECTOR INVOLVEMENT IN INFRASTRUCTURE PROJECTS JOHN QUIGGIN Australian Economic review ,96(1), 51-64. I would like to thank Nancy Wallace and the editors of the Australian Economic Review for critical comments that have helped me to greatly improve the presentation of the arguments in this paper, and remove numerous errors and structural defects from the paper. I am the residual claimant for all remaining errors and defects. This paper examines the case for and against private provision of infrastructure with particular emphasis on the allocation of systematic and idiosyncratic risk. Abstract There has been little systematic discussion of the issues associated with private involvement in infrastructure. Analysis of the relative performance of the private and public sector in different phases of infrastructure provision suggests that in most cases, the private sector will be most efficient in the construction phase but the public sector will be best equipped to handle the risks associated with ownership. The situation is less clear-cut with respect to operation — a mixture in which core operations are undertaken by the public sector owner with peripheral operations being contracted out may be optimal in many cases. PRIVATE SECTOR INVOLVEMENT IN INFRASTRUCTURE PROJECTS 1. Introduction Despite the absence of any coordinated policy, private involvement in the provision of infrastructure has increased rapidly in recent years. However, there has been little 1 systematic discussion of the issues associated with private involvement in infrastructure , and little information is availa