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The Basic Public Finance of Public-Private Partnerships

  • Eduardo Engel
  • Ronald Fischer
  • Alexander Galetovic

Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13284.

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Date of creation: Jul 2007
Date of revision:
Publication status: published as Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, 02.
Handle: RePEc:nbr:nberwo:13284
Note: IO PE
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