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Public-private partnerships and the privatization of financing: An incomplete contracts approach

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  • de Bettignies, Jean-Etienne
  • Ross, Thomas W.

Abstract

Governments have begun to embrace public-private partnerships (P3s) as vehicles for providing public services. This paper considers the controversial question of when private financing of public projects is optimal. Private development can dominate public financing through more efficient termination decisions for bad projects, resolving soft budget constraint problems. Due to contractual incompleteness and externalities, on the other hand, private developers cannot commit to large debt repayments, and hence can finance only a subset of valuable projects. Public developers, who do not face the same commitment problems, can finance a larger set of projects.

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File URL: http://www.sciencedirect.com/science/article/B6V8P-4TTMN65-1/2/53f0ab359e4ed46e368ab7dc9a111b17
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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 3 (May)
Pages: 358-368

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Handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:358-368

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Public-private partnerships Incomplete contracts Soft budget constraints;

References

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Citations

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Cited by:
  1. Iossa, Elisabetta & Martimort, David, 2011. "Risk Allocation and the Costs and Benefits of Public-Private Partnerships," CEPREMAP Working Papers (Docweb) 1104, CEPREMAP.
  2. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.
  3. Daniel Danau & Annalisa Vinella, 2012. "Public-private contracting under limited commitment," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201227, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  4. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer, vol. 35(1), pages 1-18, September.
  5. Luciano Greco, 2012. "Imperfect Bundling In Public-Private Partnerships," "Marco Fanno" Working Papers 0147, Dipartimento di Scienze Economiche "Marco Fanno".

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