In 2012, the Commonwealth of Virginia contemplated outsourcing the management of its port to private operators. Most large ports in the U.S. (L.A.,Seattle, NY/NJ) have one or more private firms managing and operating them. Ultimately, Virginia decided not to privatize its port management. (a)Why might a private operator generate better results than a public sector operator? (b)A private operator has to pay for the right to operate a port. If you are in charge of a port, perhaps L.A., how would you determine the right amount of money to charge the private operator? (c)How could you structure the contract so that the private operator has an incentive to do well and L.A. will also do well at the same time? Solution (a) Operations and Managemnet of ports are businesses in their own right and should be managed to achieve optimal utilization of capital. Investments in port assets are affected by risk, competition for land and capital, or other factors in the competitive business environment. Subsidies and government-provided incentives distort the allocation of resources for port development and may result in over- or underinvestment. Therefore, private operators may generate better results than a public sector operator. (b) For determing the right amoount of money to be charged to private operators, an authority of port has to consider numerouos factors that may affect the interport competition. Such as geographical location including Proximity to one or more major maritime routes, natural deep water, good protection against waves and currents, large waterfront and landside expansion possibilities, proximity to major production or consumption areas, good hinterland connections (road, rail, pipeline, and waterway) with high frequency service offering good connectivity. Types of cargos handled at the port, Institutional structure and socioeconomic climate are other factors that measures the benefits for the operators. Besides costs will also be determined and then a match between them is found to get the right amount of charge. (c) The contract would include some government interventions to improve the public goods, that are inherently nondivisible and nonconsumable, such as public safety, security, and a healthy environment. Investments would be made by the public in port assets that have strong direct and indirect multiplier effects on the entire national economy and, further, that the commitment of public resources would be made available to encourage coinvestment by the commercial and industrial sectors..