The economics of infrastructure finance: Public-Private Partnerships versus public provision
AbstractWe examine the economics of infrastructure finance, focusing on public provision and Public-Private Partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and because assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus, in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs revenue guarantees and the results of PPP contract negotiation in the government balance sheet.
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Bibliographic InfoPaper provided by European Investment Bank, Economics Department in its series EIB Papers with number 2/2010.
Length: 30 pages
Date of creation: 17 Dec 2010
Date of revision:
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Fiscal accounting; PPP premium; Project finance; Renegotiations; Revenue guarantees; Special Purpose Vehicule;
Other versions of this item:
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2010. "The economics of infrastructure finance: Public-private partnerships versus public provision," Documentos de Trabajo 276, Centro de Economía Aplicada, Universidad de Chile.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-CFN-2011-02-05 (Corporate Finance)
- NEP-LAM-2011-02-05 (Central & South America)
- NEP-PPM-2011-02-05 (Project, Program & Portfolio Management)
- NEP-URE-2011-02-05 (Urban & Real Estate Economics)
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