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How to Design Public-Private Partnerships in a Warming World? - When Infrastructure Becomes a Really “Hot” Topic

Author

Listed:
  • David Martimort

    (Paris School of Economics-EHESS. Email: david.martimort@parisschoolofeconomics.eu)

  • Stéphane Straub

    (Toulouse School of Economics, ARQADE and IDEI. Email: stephane.straub@univ-tlse1.fr)

Abstract

We analyze how the deep current scientific uncertainty regarding future climate conditions affects the design of Public Private Partnerships (PPPs) contracts between a government (principal) and a firm (agent), especially in infrastructure sectors that are highly sensitive to such changing weather conditions. Consistently with the literature on uncertainty and irreversibility, the prospect of future, uncertain productivity shocks that affect the returns on the firm’s effort in the future creates an option value of delaying efforts. By designing dynamic intertemporal incentive schemes for his agent, the principal can play on this option value. Whether this option value is exacerbated or not in an agency context depends on the properties of the agent’s cost of efforts.

Suggested Citation

  • David Martimort & Stéphane Straub, 2011. "How to Design Public-Private Partnerships in a Warming World? - When Infrastructure Becomes a Really “Hot” Topic," Working Papers 2011/25, Maastricht School of Management.
  • Handle: RePEc:msm:wpaper:2011/25
    as

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    File URL: http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2011-25.pdf
    File Function: First version, 2011
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Public-private partnerships; global warming; option value; principal-agent.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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