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- November 2012: Volume 5, Number 10

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Quantifying Political Risk: How to Measure the Seemingly Unmeasurable

by Bruce Cole

“You can’t control what you can’t measure.” These memorable words herald from my student days at the Stanford Graduate School of Business. Their wisdom was meant to guide graduates through the challenges of managing America’s Rustbelt and high-tech businesses. However, the words have a special meaning for those who confront issues related to political risk in planning today’s public-private partnerships.

From the private firm’s perspective, political risk can be defined as the likelihood of a strategic or financial loss occurring because of nonmarket factors created by local economic and social policies. In the context of investments in infrastructure projects, state and local government entities are a primary source these nonmarket factors.

Regional commissions, state legislatures, public university boards of trustees and regulatory authorities are just a few of

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