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Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships

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  • André De Palma
  • Guillaume Prunier
  • Luc E. Leruth

Abstract

There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/177.

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Length: 23
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/177

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Related research

Keywords: Burden sharing; Financial risk; Fiscal management; Fiscal transparency; Public finance; private partnerships; telecommunications; private company; ppp; public sector; public interest; public sectors; political process; telecommunications operator; private partnership; institutional structure; public institutions; telecom;

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References

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  1. Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(3), pages 171-195, Summer.
  2. André de Palma & Jean-Luc Prigent, 2007. "Hedging global environment risks: An option based portfolio insurance," THEMA Working Papers 2007-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  3. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(2), pages 393-411, March.
  4. Eric Maskin & Jean Tirole, 2006. "Public-private Partnerships and Government Spending Limits," Economics Working Papers, Institute for Advanced Study, School of Social Science 0075, Institute for Advanced Study, School of Social Science.
  5. Estache, Antonio, 2005. "PPI partnerships versus PPI divorces in developing countries (or are we switching from PPPI to PPDI?)," Policy Research Working Paper Series 3470, The World Bank.
  6. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  7. John Bennett & Elisabetta Iossa, 2002. "Building and Managing Facilities for Public Services," Economics and Finance Discussion Papers, Economics and Finance Section, School of Social Sciences, Brunel University 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  8. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, Econometric Society, vol. 61(3), pages 629-56, May.
  9. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
  10. Dewatripont, Mathias & Legros, Patrick, 2005. "Public-private partnerships: contract design and risk transfer," EIB Papers 5/2005, European Investment Bank, Economics Department.
  11. Valila, Timo, 2005. "How expensive are cost savings? On the economics of public-private partnerships," EIB Papers 4/2005, European Investment Bank, Economics Department.
  12. Polackova, Hana, 1998. "Contingent government liabilities : a hidden risk for fiscal stability," Policy Research Working Paper Series 1989, The World Bank.
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Cited by:
  1. Arshad Ali Javed & Patrick T.I. Lam & Albert P.C. Chan, 2014. "Change negotiation in public-private partnership projects through output specifications: an experimental approach based on game theory," Construction Management and Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(4), pages 323-348, April.

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