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The Basic Public Finance Of Public–Private Partnerships

Author

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  • Eduardo Engel
  • Ronald Fischer
  • Alexander Galetovic

Abstract

Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.
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Suggested Citation

  • Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
  • Handle: RePEc:bla:jeurec:v:11:y:2013:i:1:p:83-111
    DOI: j.1542-4774.2012.01105.x
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    File URL: http://hdl.handle.net/10.1111/j.1542-4774.2012.01105.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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