Annual Review of Financial Economics · 2012 · 44 citations · 49 references
Public AffairsEconomicsPublic FinanceCost Of CapitalPublic EconomicsPublic InvestmentBorrowing CostsFinancial RiskInfrastructure FinancingInvestment PolicyPublic Investment FinancingPublic Investment ManagementEmergency Lending FacilitiesFederal Student LoansFiscal Risk MeasurementMarket Risk ModelingProject Cost Of CapitalProject Finance ValuationPublic Investment Risk AssessmentPublic Investment Risks
Governments play a central role in the allocation of capital and risk in the economy. Evaluating the cost to taxpayers of government investments requires an assumption about the government's cost of capital. Governments often take their borrowing rate to be their cost of capital, which implicitly treats the market risk associated with their activities as having no cost to taxpayers. This article reviews the theoretical and practical rationale for treating market risk as a cost to governments, presents an interpretive review of the growing literature that applies the concepts and tools of modern finance to evaluating the costs of government policies and projects, and suggests directions for future research. Examples considered include deposit insurance, Fannie Mae and Freddie Mac, the Federal Reserve's emergency lending facilities, student loans, real infrastructure investments, and public pension plans.
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The Cross‐Section of Expected Stock Returns
Eugene F. Fama, Kenneth R. French · The Journal of Finance · 1992 · 15.1K citations · Full text
Credit Rationing in Markets with Imperfect Information
Joseph E. Stiglitz, Andrew Weiss · American Economic Review · 1981 · 12.9K citations · Full text
ON THE PRICING OF CORPORATE DEBT: THE RISK STRUCTURE OF INTEREST RATES*
Robert C. Merton · The Journal of Finance · 1974 · 11K citations · Full text
Business, Finance, Asset Pricing +16