Public-private partnerships: contract design and risk transfer

Mathias Dewatripont () and Patrick Legros

No 5/2005, EIB Papers from European Investment Bank, Economic and Financial Studies

Abstract: This paper critically assesses the implications of contract design and risk transfer on the provision of public services under public-private partnerships (PPPs). Two results stand out. First, the alleged strength of PPPs in delivering infrastructure projects on budget more often than traditional public procurement could be illusory. This is - to put it simply - because there are costs of avoiding cost overruns and, indeed, cost overruns can be viewed as equilibrium phenomena. Second, the use of external (i.e., third-party) finance in PPPs, while bringing discipline to project appraisal and implementation, implies that part of the return on efforts exerted by the private-sector partner accrues to outside investors; this may undo whatever beneficial effects arise from "bundling" the construction and operation of infrastructure projects, which is a hallmark of PPPs.

Keywords: public-private partnerships; contract desigh; procurement; risk transfer (search for similar items in EconPapers)
JEL-codes: D61 D86 H40 L51 (search for similar items in EconPapers)
Date: 2005-06-06
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Persistent link: http://EconPapers.repec.org/RePEc:ris:eibpap:2005_005

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