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The Basic Public Finance of Public-Private Partnerships

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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, 2007. "The Basic Public Finance of Public-Private Partnerships," Levine's Bibliography 843644000000000313, UCLA Department of Economics.
  • Handle: RePEc:cla:levrem:843644000000000313
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    References listed on IDEAS

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    JEL classification:

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

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