Financing Infrastructure in the Shadow of Expropriation

Viral Acharya, Cecilia Parlatore and Suresh Sundaresan

No 30131, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the optimal financing of infrastructure when governments have limited financial commitment and can expropriate rents from private sector firms that manage infrastructure. While private firms need incentives to implement projects well, governments need incentives to limit expropriation. This double moral hazard limits the willingness of outside investors to fund infrastructure projects. Optimal financing involves government guarantees to investors against project failure to incentivize the government to commit not to expropriate which improves private sector incentives and project quality. The model captures several other features prevalent in infrastructure financing such as government co-investment, tax subsidies, development rights, and cross-guarantees.

JEL-codes: D82 G30 G32 G38 H20 H41 H44 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-cfn, nep-cta, nep-dem and nep-ppm
Note: CF PE
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Working Paper: Financing Infrastructure in the Shadow of Expropriation (2022)
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