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Public-private partnerships: contract design and risk transfer

  • Dewatripont, Mathias

    ()

    (Universite Libre de Bruxelles)

  • Legros, Patrick

    ()

    (Universite Libre de Bruxelles)

This paper critically assesses the implications of contract design and risk transfer on the provision of public services under public-private partnerships (PPPs). Two results stand out. First, the alleged strength of PPPs in delivering infrastructure projects on budget more often than traditional public procurement could be illusory. This is - to put it simply - because there are costs of avoiding cost overruns and, indeed, cost overruns can be viewed as equilibrium phenomena. Second, the use of external (i.e., third-party) finance in PPPs, while bringing discipline to project appraisal and implementation, implies that part of the return on efforts exerted by the private-sector partner accrues to outside investors; this may undo whatever beneficial effects arise from "bundling" the construction and operation of infrastructure projects, which is a hallmark of PPPs.

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Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 5/2005.

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Length: 26 pages
Date of creation: 06 Jun 2005
Date of revision:
Handle: RePEc:ris:eibpap:2005_005
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