The Basic Public Finance of Public-Private Partnerships

Eduardo M.R.A. Engel (), Ronald David Fischer and Alexander Galetovic

No 1618, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.

Keywords: Bundling; Cost of public funds; Demsetz auction; Minimum revenue guarantees; Privatization; Revenue and profit caps; Scope of government; Subsidies (search for similar items in EconPapers)
JEL-codes: H21 H54 L51 R42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-ppm
Date: 2007-07, Revised 2008-02
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http://cowles.econ.yale.edu/P/cd/d16a/d1618.pdf (application/pdf)

Related works:
Working Paper: The Basic Public Finance of Public-Private Partnerships (2007)
Working Paper: The Basic Public Finance of Public-Private Partnerships (2007)
Working Paper: The Basic Public Finance of Public-Private Partnerships (2007)
Working Paper: The Basic Public Finance of Public-Private Partnerships (2007)
Working Paper: The Basic Public Finance of Public-Private Partnerships (2008)
Working Paper: The Basic Public Finance of Public-Private Partnerships (2007)
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