Techniques for Estimating the Fiscal Costs and Risks of Long-term Output-based Payments

Glenn Boyle and Tim Irwin

No 18952, Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation

Abstract: Long-term commitments to make output-based payments for infrastructure can encourage private investors to provide socially valuable services. Making good decisions about such commitments is difficult however unless the government understands the fiscal costs and risks of possible commitments. Considering voucher schemes shadow tolls availability payments and access connection and consumption subsidies this paper considers measures of the fiscal risks of such commitments including the excess-payment probability and cash-flow-at-risk. Then it illustrates techniques based on modern finance theory for valuing payment commitments by taking account of the timing of payments and their risk-characteristics. Although the paper is inevitably mathematical it focuses on practical applications and shows how the techniques can be implemented in spreadsheets.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcsr:18952

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