The interest cost savings from municipal bond insurance: The implications for privatization

Previous studies of privatization have considered the cost-effectiveness of privatizing more labor-intensive services. This study examines the effectiveness of public and private delivery of a more capital-intensive service: insuring municipal bonds against default. Credit enhancement for local gove...

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Bibliographic Details
Published in:Journal of policy analysis and management 1987, Vol.6 (2), p.207-219
Main Author: Bland, Robert L.
Format: Article
Language:English
Subjects:
Bond issues
Casualty insurance
Cost Containment
Credit
Credit insurance
Credit ratings
Insurance
Insurance industry
Insurance providers
Interest costs
Local government
Monetary policy
Municipal bonds
Public Finance
Public Roles in Insurances Markets
Public Services
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Summary:Previous studies of privatization have considered the cost-effectiveness of privatizing more labor-intensive services. This study examines the effectiveness of public and private delivery of a more capital-intensive service: insuring municipal bonds against default. Credit enhancement for local government bonds is available from private insurance companies and from some state governments. Because of their reduced default risk, bonds backed by a third party should incur lower interest rates. This research considers two questions. Does a third party guarantee lower interest rates? Is private bond insurance more cost-effective than the credit enhancement programs of state governments in lowering interest rates?
ISSN:0276-8739
1520-6688
DOI:10.2307/3324516