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Public-private partnerships: contract design and risk transfer

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Author Info
Dewatripont, Mathias () (Universite Libre de Bruxelles)
Legros, Patrick () (Universite Libre de Bruxelles)

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Abstract

This paper critically assesses the implications of contract design and risk transfer on the provision of public services under public-private partnerships (PPPs). Two results stand out. First, the alleged strength of PPPs in delivering infrastructure projects on budget more often than traditional public procurement could be illusory. This is - to put it simply - because there are costs of avoiding cost overruns and, indeed, cost overruns can be viewed as equilibrium phenomena. Second, the use of external (i.e., third-party) finance in PPPs, while bringing discipline to project appraisal and implementation, implies that part of the return on efforts exerted by the private-sector partner accrues to outside investors; this may undo whatever beneficial effects arise from "bundling" the construction and operation of infrastructure projects, which is a hallmark of PPPs.

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Publisher Info
Paper provided by European Investment Bank, Economic and Financial Studies in its series EIB Papers with number 5/2005.

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Length: 26 pages
Date of creation: 06 Jun 2005
Date of revision:
Handle: RePEc:ris:eibpap:2005_005

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Related research
Keywords: public-private partnerships; contract desigh; procurement; risk transfer;

Find related papers by JEL classification:
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
H40 - Public Economics - - Publicly Provided Goods - - - General
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

References listed on IDEAS
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.:

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  15. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March. [Downloadable!] (restricted)
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  16. Mathias Dewatripont & Patrick Legros & Steven A. Matthews, 2003. "Moral Hazard and Capital Structure Dynamics," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 890-930, 06. [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. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2008. "The Basic Public Finance of Public-Private Partnerships," Working Papers 35, Yale University, Department of Economics. [Downloadable!]
    Other versions:
  2. Kenneth A. Small, 2009. "Private Provision of Highways: Economic Issues," Working Papers 080917, University of California-Irvine, Department of Economics. [Downloadable!]
  3. Eric Maskin & Jean Tirole, 2006. "Public-private Partnerships and Government Spending Limits," Economics Working Papers 0075, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  4. André De Palma & Luc Leruth & Guillaume Prunier, 2009. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," Working Papers hal-00419234_v1, HAL. [Downloadable!]
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