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The Basic Public Finance of Public-Private Partnerships

  • Eduardo Engel
  • Ronald Fischer
  • Alexander Galetovic

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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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 843644000000000313.

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Date of creation: 31 Jul 2007
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Handle: RePEc:cla:levrem:843644000000000313
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