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How to design infrastructure contracts in a warning world: a critical appraisal of public-private partnerships

Author

Listed:
  • David Martimort

    (PSE - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Stephane Straub

    () (ARQADE - Atelier de Recherche Quantitative Appliquée au Développement Economique - UT1 - Université Toulouse 1 Capitole, IDEI - Institut d'économie industrielle - UT1 - Université Toulouse 1 Capitole, TSE - Toulouse School of Economics - Toulouse School of Economics)

Abstract

We analyze how long-term uncertainty, for example, regarding future climate conditions, affects the design of concession contracts and organizational forms in a principal–agent context, with dynamic moral hazard, limited liability, and irreversibility constraints. The prospect of future, uncertain productivity shocks on the returns on the firm's effort creates an option value of delaying efforts, a course that exacerbates agency costs. Contracts and organizational forms are drafted to control this cost of delegated flexibility. The possibility for the agent to delay investment in response to uncertainty and irreversibility also elicits preference for unbundling different stages of the project through short-term contracts. Our analysis is relevant to infrastructure sectors that are sensitive to changing weather conditions and sheds a pessimistic light on the relevance of public–private partnerships in this context.

Suggested Citation

  • David Martimort & Stephane Straub, 2016. "How to design infrastructure contracts in a warning world: a critical appraisal of public-private partnerships," Post-Print halshs-01328640, HAL.
  • Handle: RePEc:hal:journl:halshs-01328640
    DOI: 10.1111/iere.12148
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01328640
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Buso, Marco & Marty, Frederic & Tran, Phuong Tra, 2017. "Public-private partnerships from budget constraints: Looking for debt hiding?," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 56-84.
    2. repec:ipf:psejou:v:42:y:2018:i:2:p:145-169 is not listed on IDEAS
    3. Deng, Zhongqi & Song, Shunfeng & Chen, Yongjun, 2016. "Private participation in infrastructure project and its impact on the project cost," China Economic Review, Elsevier, vol. 39(C), pages 63-76.
    4. David Martimort & Stéphane Straub, 2016. "How To Design Infrastructure Contracts In A Warming World: A Critical Appraisal Of Public–Private Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 61-88, February.
    5. Schmitz, Patrick W., 2013. "Job design with conflicting tasks reconsidered," European Economic Review, Elsevier, vol. 57(C), pages 108-117.
    6. Schmitz, Patrick W., 2013. "Public procurement in times of crisis: The bundling decision reconsidered," Economics Letters, Elsevier, vol. 121(3), pages 533-536.
    7. Marco Buso, 2014. "Public-Private Partnership: Information Externality in Sequential Investments," "Marco Fanno" Working Papers 0176, Dipartimento di Scienze Economiche "Marco Fanno".

    More about this item

    Keywords

    concession contracts;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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