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.
This paper was revised on March 2, 2009
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.
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