Internal rents and the ownership of state properties: experiences from Sweden

Purpose - The purpose of this paper is to show that general- and special-purpose properties have to be dealt with differently by the public sector. Design/methodology/approach - Application of standard economic theory concerning pricing of properties and infrastructure. The issues are analyzed based on experiences from Swedish state-owned properties. Findings - The distinction results in quite different public property management strategies. Special-purpose properties have no short-run alternative use and have limited rental and capital values, unlike general-purpose properties. Thus, to apply a required rate of return based on assumed capital values universally will lead to inefficient use. For special-purpose properties, short-run marginal costs (SRMCs) should be charged - no more. Practical implications - General properties owned by the state represent a suitable case for privatization. For special-purpose properties, only SRMCs should be charged. Originality/value - The paper makes a distinction between two kinds of state-owned properties; general- and special-purpose properties, and analyzes the important consequences in property management.