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Excess returns in Public-Private Partnerships: Do governments pay too much?

Author

Listed:
  • Marco Buso

    (Department of Economics and Finance, Catholic University of Sacred Heart, Milan and Interuniversity Centre for Public Economics (CRIEP))

  • Michele Moretto

    (DSEA, University of Padova)

  • Dimitrios Zormpas

    (Department of Mathematics, University of Bologna)

Abstract

We study the optimal design of Public-Private Partnerships (PPPs) when there is unobservable action on the private party’s side. We show that if the private party does not have negotiating power over the project’s surplus, no inefficient delays are attributable to the moral hazard issue. However, if the private party has negotiating power, the first-best timing is not guaranteed. This time discrepancy is shown to be costly in terms of overall project efficiency. The explicit consideration of the private party’s negotiating power can explain empirical evidence showing that private parties in PPPs reap excess returns.

Suggested Citation

  • Marco Buso & Michele Moretto & Dimitrios Zormpas, 2020. "Excess returns in Public-Private Partnerships: Do governments pay too much?," "Marco Fanno" Working Papers 0246, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0246
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    References listed on IDEAS

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    More about this item

    Keywords

    public projects; public-private partnerships; moral hazard; real options; investment timing;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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