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The National Health Service (NHS) hospitals in Britain are currently in a state of decay following many years of underinvestment in the estate. The NHS urgently requires billions of pounds of investment ranging from total hospital new builds to small refurbishment of existing facilities. The previous Conservative government put forward the Private Finance Initiative (PFI) as the procurement mechanism to address this problem. The new Labour government currently appear to be committing themselves to the same approach. PFI project sponsors have spent upwards of £30m bidding for around 30 major PFI schemes. Despite this, by the time of the UK election in May 1997 not one scheme had reached financial close and many sponsors were expressing their disillusionment with the process. Unlike PFI on other Government infrastructure and service schemes, each PFI hospital is tendered by a separate Trust with their own limited budgets. Many Trusts have demanded schemes without realising that they cannot afford them and whilst these schemes may work out cheaper than publicly financed hospitals over 30 years or more, charges are higher in the early years. This is primarily due to the market for loans, the conditions attached to these loans in terms of repayment periods and cover ratios, and the requirement of the sponsors to generate a reasonable return on their investment. This paper discusses the major issues and analyses some of the technical financial problems surrounding the PFI in the NHS. The authors draw on practical experience of financial structuring and modelling hospital projects to build a generic model to analyse NHS PFI economics.

Rede Alta Velocidade, SA (RAVE), the state-owned company responsible for planning and developing a major high-speed rail project in Portugal, must persuade both public officials and lenders that the project is worth undertaking. It must also make a recommendation on the appropriate organizational form for the enterprise. Specifically, it must determine the role of the Portuguese government in financing and operating the high-speed rail network, with options ranging from full development and management of the project by the public sector to completely private development and management. Lying in between these two polar cases were a variety of hybrid models, often referred to as public-private partnerships (PPPs). Using data in the case, students have the opportunity to perform a benefit-cost analysis of the project. They also must think carefully about the optimal role of the government in a major new infrastructure project.

After analyzing and discussing the case, students will be able to:

• Understand the nature of a global public good

• Perform a back-of-the-envelope benefit-cost analysis of polio eradication

• Discuss the appropriate strategy for eradicating an infectious disease

• Apply game theory to analyzing which countries would be likely to contribute funds toward global polio eradication

• Discuss the role of private organizations in the provision of global public goods

Understand the nature of a global public good

Perform a back-of-the-envelope benefit-cost analysis of polio eradication

Discuss the appropriate strategy for eradicating an infectious disease

Apply game theory to analyzing which countries would be likely to contribute funds toward global polio eradication

Discuss the role of private organizations in the provision of global public goods