Funding and financing infrastructure: The joint-use of public and private finance

We characterize the structure of financial and regulatory infrastructure contracts and derive conditions under which public and private finance coexist. This requires a combination of regulated prices and public subsidies sufficiently attractive for outside financier pointing at a fundamental trade-off between financial viability and social inclusion. While improvements in the efficiency of bankruptcy procedures facilitate access to private finance, institutional changes lowering the cost of public funds make public finance more attractive. Project data from the PPI database provides support for our findings and reveals an inverse U-shaped pattern, with private finance peaking for countries in the upper-middle income range.