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The economics of infrastructure finance: Public-Private Partnerships versus public provision

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  • Engel, Eduardo

    ()
    (Yale University)

  • Fischer, Ronald

    ()
    (University of Chile)

  • Galetovic, Alexander

    ()
    (Universidad de los Andes, Chile)

Abstract

We 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 Info

Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 2/2010.

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Length: 30 pages
Date of creation: 17 Dec 2010
Date of revision:
Handle: RePEc:ris:eibpap:2010_002

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Keywords: Fiscal accounting; PPP premium; Project finance; Renegotiations; Revenue guarantees; Special Purpose Vehicule;

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References

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  1. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports 2002/1, European Investment Bank, Economics Department.
  2. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports 2000/2, European Investment Bank, Economics Department.
  3. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
  4. Douglas Sutherland & Sonia Araujo & Balázs Égert & Tomasz Kozluk, 2009. "Infrastructure Investment: Links to Growth and the Role of Public Policies," OECD Economics Department Working Papers 686, OECD Publishing.
  5. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
  6. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports 2002/2, European Investment Bank, Economics Department.
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Citations

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Cited by:
  1. Frédéric Marty & Julie de Brux, 2014. "IPPP – Risks and opportunities An economic perspective," Sciences Po publications 2014-11, Sciences Po.
  2. Alexander Moore & Stéphane Straub & Jean-Jacques Dethier, 2014. "Regulation, renegotiation and capital structure: theory and evidence from Latin American transport concessions," Journal of Regulatory Economics, Springer, vol. 45(2), pages 209-232, April.
  3. Byoun, Soku & Xu, Zhaoxia, 2014. "Contracts, governance, and country risk in project finance: Theory and evidence," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 124-144.
  4. Lin, Justin Yifu, 2013. "Global infrastructure initiative and global recovery," Journal of Policy Modeling, Elsevier, vol. 35(3), pages 400-411.
  5. Pekka Leviakangas & Pekka Kess & Jaakko Kujala, 2013. "Investment Analysis in Public-Private-Partnership Projects: Any Common Ground for Public and Private Investors?," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress.
  6. Luciano Greco, 2012. "Imperfect Bundling In Public-Private Partnerships," "Marco Fanno" Working Papers 0147, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Marco Buso, 2014. "Public-Private Partnership: Information Externality in Sequential Investments," "Marco Fanno" Working Papers 0176, Dipartimento di Scienze Economiche "Marco Fanno".

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