Excess returns in Public-Private Partnerships: Do governments pay too much?

Marco Buso (), Michele Moretto and Dimitrios Zormpas
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Marco Buso: Department of Economics and Finance, Catholic University of Sacred Heart, Milan and Interuniversity Centre for Public Economics (CRIEP)

No 246, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We study the optimal design of Public-Private Partnerships (PPPs) when there is unobservable action on the private party’s side. We show that if the private party does not have negotiating power over the project’s surplus, no inefficient delays are attributable to the moral hazard issue. However, if the private party has negotiating power, the first-best timing is not guaranteed. This time discrepancy is shown to be costly in terms of overall project efficiency. The explicit consideration of the private party’s negotiating power can explain empirical evidence showing that private parties in PPPs reap excess returns.

Keywords: public projects; public-private partnerships; moral hazard; real options; investment timing (search for similar items in EconPapers)
JEL-codes: D81 D82 D86 H54 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-02
New Economics Papers: this item is included in nep-mic, nep-ppm and nep-reg
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Journal Article: Excess returns in Public-Private Partnerships: Do governments pay too much? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0246

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