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Public-private partnerships: contract design and risk transfer

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  • Dewatripont, Mathias

    ()
    (Universite Libre de Bruxelles)

  • Legros, Patrick

    ()
    (Universite Libre de Bruxelles)

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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Bibliographic Info

Paper provided by European Investment Bank, Economics Department 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;

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References

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  1. 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.
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  4. Mathias Dewatripont & Patrick Legros & Steven A. Matthews, 2003. "Moral Hazard and Capital Structure Dynamics," PIER Working Paper Archive 03-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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