Public-Private Contracting under Limited Commitment
Daniel Danau () and
Annalisa Vinella ()
Journal of Public Economic Theory, 2015, vol. 17, issue 1, 78-110
A government delegates a build-operate-transfer project to a private firm in a limited-commitment framework. When the contract is signed, parties are uncertain about the operating cost. The firm can increase the likelihood of facing a low cost by exerting some noncontractible effort while building the facility. Once the facility is in place, the firm learns the marginal cost and begins to operate. We characterize the contract which stipulates the efficient allocation. We study the financial structure and duration that secure its enforcement. To this end, we take into account that break-up of the partnership occasions a replacement cost for the government and an expropriation cost for the firm and its lender. Furthermore, both these costs are higher the earlier the contract is terminated. Enforcement is achieved as follows. The firm is instructed to invest some intermediate amount of own and borrowed funds. Under the aegis of a third party that can commit, the government provides guarantees to the lender, conditional on continuation of the partnership. Duration may be shortened, though not to the point where the initial effort of the firm is uncompensated.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: Public-Private Contracting under Limited Commitment (2015)
Working Paper: Public-private contracting under limited commitment (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:17:y:2015:i:1:p:78-110
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1097-3923
Access Statistics for this article
Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders
More articles in Journal of Public Economic Theory from Association for Public Economic Theory Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().