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Risk allocation and the costs and benefits of public--private partnerships

Author

Listed:
  • Elisabetta Iossa

    (CEPR - Center for Economic Policy Research, Università degli Studi di Roma Tor Vergata [Roma, Italia] = University of Rome Tor Vergata [Rome, Italy] = Université de Rome Tor Vergata [Rome, Italie])

  • David Martimort

    (CEPR - Center for Economic Policy Research, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We study the agency costs of delegated public service provision, focusing on the link between organizational forms and uncertainty at project implementation. We consider a dynamic multitask moral hazard environment where the mapping between effort and performance is ex ante uncertain but new information may arise during operations. Our analysis highlights the costs and benefits that bundling planning and implementation--as under public--private partnerships--can bring in terms of project design and operational costs under various scenarios, possibly allowing for asymmetric information, moral hazard and renegotiation. It also shows that relying on private finance enhances the benefits of bundling only if lenders have enough expertise to assess project risks.

Suggested Citation

  • Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," Post-Print hal-00813153, HAL.
    • Handle: RePEc:hal:journl:hal-00813153
    DOI: 10.1111/j.1756-2171.2012.00181.x
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