A Comprehensive Evaluation of the Comparative Cost of Negotiated and Competitive Methods of Municipal Bond Issuance

Eric Fruits, James Booth, Randall Pozdena and Richard Smith

Municipal Finance Journal, 2008, vol. 28, issue 4, 15 - 41

Abstract: Municipal finance relies heavily on the issuance of debt. The debt is issued by a diverse range of public entities. The issuer of the debt has a choice in how the debt is issued. The issuer may choose a negotiated method or a competitive method. Some analysts believe they have observed systematic differences in the cost to the issuer by type of issuance. These findings have, in turn, led researchers to evaluate whether—or under what conditions—one method of issuance is superior to another. The empirical findings presented in this study suggest that there is no general advantage of competitive over negotiated issuance processes. Rather, there appears to be a strong tendency for issuers to select the method of issuance that best suits the nature of the issue at hand, such that efforts to mandate one type of issuance over the other will likely increase, rather than decrease, issuance costs.

Date: 2008
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