The Basic Public Finance of Public-Private Partnerships

Eduardo M.R.A. Engel (), Ronald David Fischer and Alexander Galetovic ()
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Alexander Galetovic: Universidad de Los Andes

Working Papers from Economic Growth Center, Yale University

Abstract: Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are desirable because the private sector is more efficient, the contract that optimally trades demand risk, user-fee distortions and the opportunity cost of public funds is characterized by a minimum revenue guarantee and a cap on the firm's revenues. Yet income guarantees and revenue sharing arrangements observed in practice differ fundamentally from those suggested by the optimal contract. The optimal contract can be implemented via a competitive auction with realistic informational requirements; and risk allocation under the optimal contract suggests that PPPs are closer to public provision than to privatization.

Keywords: Bundling; cost of public funds; subsidies; minimum revenue guarantees; revenue and profit caps; Demsetz auctions (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-pub
Date: 2007-07
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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 (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:egc:wpaper:957

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