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The Basic Public Finance of Public-Private Partnerships

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Author Info
Eduardo Engel
Ronald Fischer
Alexander Galetovic

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13284.

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Date of creation: Jul 2007
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Handle: RePEc:nbr:nberwo:13284

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
R42 - Urban, Rural, and Regional Economics - - Transportation Systems - - - Government and Private Investment Analysis

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bennett, John & Iossa, Elisabetta, 2006. "Building and managing facilities for public services," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2143-2160, November. [Downloadable!] (restricted)
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  2. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June. [Downloadable!] (restricted)
  3. Klein, Michael, 1997. "The Risk Premium for Evaluating Public Projects," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 29-42, Winter.
  4. Grout, Paul A, 1997. "The Economics of the Private Finance Initiative," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 53-66, Winter.
  5. Harstad, Ronald M & Crew, Michael A, 1999. "Franchise Bidding without Holdups: Utility Regulation with Efficient Pricing and Choice of Provider," Journal of Regulatory Economics, Springer, vol. 15(2), pages 141-63, March. [Downloadable!] (restricted)
  6. Paul A. Grout & Margaret Stevens, 2003. "The Assessment: Financing and Managing Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 215-234, Summer.
  7. Brealey, R A & Cooper, I A & Habib, M A, 1997. "Investment Appraisal in the Public Sector," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 12-28, Winter.
  8. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eduardo Engel & Ronald Fischer, 2008. "Optimal resource extraction contracts under threat of expropriation," Documentos de Trabajo 244, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
    Other versions:
  2. Athias, Laure, 2007. "Political accountability, incentives, and Contractual design of public private partnerships," MPRA Paper 10538, University Library of Munich, Germany. [Downloadable!]
  3. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany. [Downloadable!]
  4. Easterly, William & Irwin, Timothy & Serven, Luis, 2007. "Walking up the down escalator : public investment and fiscal stability," Policy Research Working Paper Series 4158, The World Bank. [Downloadable!]
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