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Overcoming Opportunism in Public-Private Project Finance

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  • Marian Moszoro

Abstract

Opportunism, either governmental or private, is a powerful deterrent against public-private project financing, especially when considering the scale of the investment in infrastructure. The parties can, however, secure themselves against opportunism of the counter-party by exchanging an exit (put) option for the private investor and a bail-out (call) option for the public agent on the private investor’s shares. These over-the-counter options combine the stability of long-term contracts and the flexibility of short-term contracts. The exit/bail-out option mechanism reduces entry barriers by streamlining incomplete long-term contracts and avoiding contractual problems related to bounded rationality and opportunism.
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Suggested Citation

  • Marian Moszoro, 2013. "Overcoming Opportunism in Public-Private Project Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(1), pages 89-96, March.
    • Handle: RePEc:bla:jacrfn:v:25:y:2013:i:1:p:89-96
    DOI: j.1745-6622.2013.12010.x
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    File URL: http://hdl.handle.net/10.1111/j.1745-6622.2013.12010.x
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    Cited by:

    1. 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.
    2. Julio Cezar Russo & Marco Antonio Guimarães Dias & André Barreira da Silva Rocha & Fernando Luiz Cyrino Oliveira, 2018. "Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach," Group Decision and Negotiation, Springer, vol. 27(6), pages 949-979, December.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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