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The Basic Public Finance of Public-Private Partnerships

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  • Engel, Eduardo

    (Yale U)

  • Fischer, Ronald

    (U of Chile)

  • Galetovic, Alexander

    (U of the Andes)

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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Bibliographic Info

Paper provided by Yale University, Department of Economics in its series Working Papers with number 35.

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Date of creation: Feb 2008
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Handle: RePEc:ecl:yaleco:35

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