 An analysis of government loan guarantees and direct investment through public-private partnershipsIssouf Soumaré and Van Son Lai Economic Modelling, 2016, vol. 59, issue C, 508-519 Abstract: This paper compares two forms of government support: loan guarantee and direct investment through public-private partnerships (PPPs). With loan guarantee, government provides financial guarantees to enhance project creditworthiness. With direct investment, government invests capital directly in the project. In both forms of support, the government receives shares proportional to its financial commitment. We find that loan guarantees are more effective in reducing project borrowing costs. In a perfect information environment, loan guarantee support will yield more wealth to the government than a cost equivalent direct investment. But, in an informationally asymmetric environment where the government knows less about project quality than do private partners, in other words the so-called plum problem rather than the familiar lemon problem, this implication is mitigated. We show how the portion of shares given to the government can be a bargaining tool and can mitigate information asymmetry when structuring PPPs. Keywords: Government loan guarantee; Financial guarantees; Government direct investment; Public-private partnerships (PPPs) (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:59:y:2016:i:c:p:508-519 DOI: 10.1016/j.econmod.2016.08.012 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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