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Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?

Author

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  • Marco Buso

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

  • Cesare Dosi

    (Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP))

  • Michele Moretto

    (Department of Economics and Management, University of Padova)

Abstract

We study the effects of granting an exit option that enables the private party to early terminate a PPP project if it turns out to be ?financially loss-making. In a continuous-time setting with hidden information about operating profi?ts, we show that an exit option, acting as a risk-sharing device, can soften agency problems and, in so doing, accelerate investment and increase the government?'s expected payoff, even while taking into account the costs that the public sector will have to meet in the future to take direct responsibility on service provision.

Suggested Citation

  • Marco Buso & Cesare Dosi & Michele Moretto, 2020. "Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?," Working Papers 2020.03, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2020.03
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    References listed on IDEAS

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    Cited by:

    1. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
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    3. Marco Buso & Cesare Dosi & Michele Moretto, 2023. "Taxation of Public Franchises with Persistent Demand Shocks," "Marco Fanno" Working Papers 0306, Dipartimento di Scienze Economiche "Marco Fanno".
    4. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    5. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2023. "Dynamic, incentive-compatible contracting for health services," Working Papers 2023.16, Fondazione Eni Enrico Mattei.
    6. Nicole B. Baker & Christian Haddad, 2024. "Private ownership and management control decisions in infrastructure from the perspective of Transaction Cost Theory: Evidence from emerging economies," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 764-791, July.
    7. Chiara D’Alpaos & Michele Moretto & Paolo Rosato, 2023. "Common-Property Resource Exploitation: A Real Options Approach," Land, MDPI, vol. 12(7), pages 1-22, June.

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    More about this item

    Keywords

    Public Infrastructure Services; Public-Private Partnerships; Adverse Selection; Real Options; Early Termination Fees;
    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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