The Basic Public Finance of Public-Private Partnerships
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.
Published: Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of PublicâPrivate Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, 02.
This paper was revised on March 2, 2009