In emerging economies, the demand for infrastructure far outweighs the government's financing capabilities and, despite its higher required returns, private capital is a welcomed necessity. Since this is not an issue for the U.S. government, it is difficult to ignore the lure of the government's "risk free" cost of capital. Holding all other things equal, it would appear that substituting the project's private financing sources with public funding would allow the project sponsor to tap the credit strength represented in the government's taxing powers and effect cost reductions in the project. Although this argument appears logical, it oversimplifies the process of allocating risks and responsibilities between the government and its contractor. All too often the debate over private financing assumes the project being financed will achieve the same degree of success regardless of its financing source. Indeed, under this analytical framework, the 2% to 4% interest rate premium attached to private financing is difficult to justify. If one were to attach probabilities of success to each of the financing options, however, it is unlikely that public financing would emerge as the cheaper alternative. The case for private financing can be made by examining the inherent incentives associated with the private finance approach, the requirements of third-party financing sources, and the contingent liabilities associated with government financing.