The Basic Public Finance of Public-Private Partnerships

Eduardo Engel, Ronald Fischer, Alexander Galetovic

NBER Working Paper No. 13284
Issued in July 2007, Revised in March 2009
NBER Program(s):Industrial Organization, Public Economics

Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w13284

Published: Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, 02. citation courtesy of

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