and the 1998 Wharton/Centre for Financial Studies Conference for helpful comments. We would also like to thank, especially, Bill Wilhelm for constant encouragement and support, and Kazunori Suzuki and Alessandro Sbuelz for excellent research assistance. We gratefully acknowledge financial support from the European Union under the Training and Mobility of Researchers grant no. ERBFMRXCT960054. Any remaining errors are our own.

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For much of the past century, there has been an increased tendency for large infrastructure projects to be funded and operated by governments. Since the early 1980s, however, private-sector financing and management of such projects have experienced a dramatic revival. In some cases, this revival has taken the form of the "privatization" of an entire industry. But another, increasingly common, form has been the use of project finance to fund instrastructure investments. Besides being widely used in infrastructure investments like telecommunications and power generation in developing countries, the use of project finance has recently been extended by the U.K.'s Private Finance Initiative to fund public enterprises as diverse as the construction and operation of prisons, hospitals, subway cars, and the National Insurance computer system. 1996 Morgan Stanley.

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