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Eduardo Engel, Ronald Fischer, Alexander Galetovic
NBER Working Paper No. 13284
Issued in July 2007
NBER Program(s): IO
PE
---- Abstract -----
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.
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This paper was revised on February 6, 2008 Machine-readable bibliographic record -
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