Public-private partnerships: when and how (original) (raw)
Related papers
2006
Public-private partnerships (PPPs) have become increasingly popular in recent years. We show that for these arrangements to be desirable from a public finance point of view, private firmsmust be productivelymore efficient than the public sector. In particular, PPPs are not a means to save on distortionary taxation. We also characterize the contract that trades off optimally demand risk, user-fee distortions and the opportu-nity cost of public funds, under the assumption that the private sector is more efficient. The private firm is fully insured against demand risk in the case of large and small projects, but bears risk for projects of intermediate size. For small projects, no subsidies are required and the optimal contract length is demand contingent. By con-trast, demand contingent subsidies are handed out in every state of demand for large projects and the contract lasts indefinitely. For projects of intermediate size the optimal contract involves a “minimum income guarantee” and...
The value of public private partnerships in infrastructure
This paper makes three claims. First, in contrast to Public-Private Partnerships (PPP) in many other industries, infrastructure contracts can be conditioned on the delivery of roads and railways of appropriate user quality. This eliminates one of the concerns in the literature of the welfare properties of PPPs. Second, the bundling of investment and maintenance into one single rather than several separate contracts may provide a way to bypass rigidities and contract incompleteness in PPP contracts. Third, having a private concessionaire organising the funding of a PPP project’s investment costs may increase financing costs. This is, however, balanced by the fact that it also enhances the agent’s commitment in long-term incomplete contracts. Taken together, these conclusions point to the possibility of using PPP as an instrument for improving the construction industry’s dismal productivity performance.
The economic or infrastructure finance: Public-Private Partnership versus public provision
2010
We examine the economics of infrastructure finance, focusing on public provision and Public-Private Partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and because assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus, in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs revenue guarantees and the results of PPP contract negotiation in the government balance sheet.