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The economics of infrastructure finance: Public-Private Partnerships versus public provision

  • Engel, Eduardo

    ()

    (Yale University)

  • Fischer, Ronald

    ()

    (University of Chile)

  • Galetovic, Alexander

    ()

    (Universidad de los Andes, Chile)

We examine the economics of infrastructure finance, focusing on public provision and Public-Private Partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and because assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus, in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs revenue guarantees and the results of PPP contract negotiation in the government balance sheet.

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Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 2/2010.

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Length: 30 pages
Date of creation: 17 Dec 2010
Date of revision:
Handle: RePEc:ris:eibpap:2010_002
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  1. Douglas Sutherland & Sonia Araujo & Balázs Égert & Tomasz Koźluk, 2009. "Infrastructure Investment: Links to Growth and the Role of Public Policies," OECD Economics Department Working Papers 686, OECD Publishing.
  2. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports 2002/1, European Investment Bank, Economics Department.
  3. Philippe Martin, 1999. "Are European regional policies delivering?," Sciences Po publications info:hdl:2441/9343, Sciences Po.
  4. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
  5. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports 2000/2, European Investment Bank, Economics Department.
  6. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports 2002/2, European Investment Bank, Economics Department.
  7. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
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