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Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?

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  • Buso, Marco
  • Dosi, Cesare
  • Moretto, Michele

Abstract

We study the effects of granting an exit option that enables the private party to early terminate a PPP project if it turns out to be financially loss-making. In a continuous-time setting with hidden information about operating profits, we show that an exit option, acting as a risk-sharing device, can soften agency problems and, in so doing, accelerate investment and increase the government's expected payoff, even while taking into account the costs that the public sector will have to meet in the future to take direct responsibility on service provision.

Suggested Citation

  • Buso, Marco & Dosi, Cesare & Moretto, Michele, 2020. "Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?," 2030 Agenda 305206, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemgc:305206
    DOI: 10.22004/ag.econ.305206
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    Cited by:

    1. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    2. Marco Buso & Cesare Dosi & Michele Moretto, 2023. "Dynamic Regulation of Public Franchises with Imperfectly Correlated Demand Shocks," Working Papers 2023.03, Fondazione Eni Enrico Mattei.
    3. Marco Buso & Cesare Dosi & Michele Moretto, 2023. "Taxation of Public Franchises with Persistent Demand Shocks," "Marco Fanno" Working Papers 0306, Dipartimento di Scienze Economiche "Marco Fanno".
    4. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    5. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2023. "Dynamic, incentive-compatible contracting for health services," Working Papers 2023.16, Fondazione Eni Enrico Mattei.
    6. Chiara D’Alpaos & Michele Moretto & Paolo Rosato, 2023. "Common-Property Resource Exploitation: A Real Options Approach," Land, MDPI, vol. 12(7), pages 1-22, June.

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    More about this item

    Keywords

    Institutional and Behavioral Economics;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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