IDEAS home Printed from
   My bibliography  Save this paper

PPP financing in the road sector: a disequilibrium analysis based on the monetary circuit


  • Massimo CINGOLANI



This contribution discusses public and private financing of infrastructure acknowledging the fact that a larger set of monetary equilibria than the neoclassical barter equilibrium can prevail in the economy. In this context money is not neutral and financing has an impact on allocation. Welfare comparison should be done between two positions that remain suboptimal before and after the realization of a project rather than between a suboptimal reality and an ideal optimum, as it is usually implied in many policy discussions. A systematic welfare comparison between private and public financing of infrastructure under these assumptions reveals that, contrary to a widely held view, there are very few rational arguments that may lead to prefer private financing to public financing of road infrastructure, particularly where local incomes are low. The argument is developed in terms of “disequilibrium”, a term used to cover all situations where any of the optimality conditions that define neoclassical equilibrium is not fulfilled. These situations are of interest for economic policy, because a real economy is likely to be always in such positions. Post Keynesian analysis in general (Eichner and Kregel, 1975), and its monetary variant of the circuit, as developed notably by Parguez and Graziani (Halevi and Taouil, 2002), are seen as useful tools for the analysis of public investment policies in such a disequilibrium context (Cingolani, 2009). In particular, some features of the monetary circuit approach are well suited to address the economic problems raised by the analysis of Public Private Partnerships (PPP), notably: a) the full integration of the banking sector and the recognition of its role in monetary creation by the private sector; b) the monetary creation by the State within a macroeconomic framework fully integrating public finance; and, c) the necessary link between uncertainty and disequilibrium, which, in such a monetary context, clarifies the Keynesian causality from investment to savings. Against this macroeconomic background, a partial equilibrium analysis based on realistic microeconomic configurations of costs and transport demand parameters, shows that, contrary to the widespread idea that PPP help removing existing constraints on public expenditures, they do not add anything to the level of effective demand, being in fact the other flip of the coin of restrictive budgetary policies. PPP thus play essentially a role in mobilising part of the passively accumulated savings that the State is forbidden to attract directly because of debt ceilings. They have a softening effect on the Government debt constraints similar to that that could be reached if the Government was allowed to accrue investment like the private sector, but are a less transparent solution, because the relevant debt is not necessarily recognized in the balance sheet that services it.

Suggested Citation

  • Massimo CINGOLANI, 2010. "PPP financing in the road sector: a disequilibrium analysis based on the monetary circuit," Departmental Working Papers 2010-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2010-09

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Arnaldo MAURI, 2005. "La tutela del risparmio dopo i casi Argentina e Parmalat," Departmental Working Papers 2005-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    2. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, March.
    3. Frydman Roman & Goldberg Michael D., 2009. "Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-45, October.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Public Private Partnerships; Monetary circuit; Roads;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:2010-09. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEMM Working Papers). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.