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How to Design Infrastructure Contracts in a Warming World? A Critical Appraisal of Public-Private Partnerships

  • Martimort, David
  • Straub, Stéphane

We analyze how uncertainty regarding future climate conditions affects the design of concession contracts, organizational forms and technological choices in a principal-agent context with dynamic moral hazard, limited liability and irreversibility constraints. The prospect of future, uncertain productivity shocks on the returns on the firm’s effort creates an option value of delaying efforts which exacerbates agency costs. Contracts and organizational forms are drafted to control this cost of delegated flexibility. Our analysis is relevant for infrastructure sectors that are sensitive to changing weather conditions and sheds a pessimistic light on the relevance of Public-Private Partnerships in this context.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-315.

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Date of creation: 11 May 2012
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Publication status: Published in International Economic Review, vol. 57, n°1, février 2016, p. 61-88.
Handle: RePEc:tse:wpaper:25892
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Web page: http://www.tse-fr.eu/

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