Researchers at the National Bureau of Economic Research suggest that the cost of tax-exempt bonds issued by local governments and financing authorities is lower in those states that follow a decentralized approach to issuing debt, rather than using a centralized borrower.

During the decade 1983 to 1992, approximately $1.4 trillion of municipal bonds were sold in 87,000 separate issues, primarily to finance capital projects for education, electric power, transportation, health care, housing and other public and private purpose activities.

• Approximately two-thirds of these issues were originated by financing authorities, which are quasi-government agencies created by state legislatures.

• Researchers found that states with less concentrated issuers have a lower cost of capital than those with a more concentrated market, including state-level finance monopolies.

• However, there are economies of scale in the health care finance industry that allow larger (often state-level) issuers to lower the cost of capital, say the researchers.

Source: Alec Ian Gershberg, Michael Grossman and Fred Goldman, "Health Care Capital Financing Agencies: The Intergovernmental Roles of Quasi-Government Authorities and the Impact on the Cost of Capital," Working Paper No. 7221, July 1999, National Bureau of Economic Research.