From fixed to state-dependent duration in public-private partnerships
Daniel Danau () and
Annalisa Vinella ()
No 01-2015, SERIES from Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro"
A government delegates a build-operate-transfer project to a private OÌˆrm. In the contracting stage, the operating cost is unknown. The OÌˆrm can increase the likelihood of facing a low cost, rather than a high cost, by exerting costly eÂ§ort when building the infrastructure. Once this is in place, the OÌˆrm learns the true cost and begins to operate. We show that, under limited commitment, if the break-up of the partnership is suÂ¢ciently costly to the government and/or information problems are suÂ¢ciently severe, the contract is not robust to renegotiation unless it has a longer duration when the realized cost is low. This result is at odds with the prescription of the literature on aÌ exible-term contracts, which recommends a longer duration when operating conditions are unfavourable.
Keywords: Public-private partnerships; state-dependent duration; aÌ exible-term con- tract; limited commitment; renegotiation; break-up (search for similar items in EconPapers)
JEL-codes: D82 H57 H81 (search for similar items in EconPapers)
Date: 2015-01, Revised 2015-01
New Economics Papers: this item is included in nep-mic, nep-ppm and nep-pub
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Journal Article: From fixed to state‐dependent duration in public‐private partnerships (2017)
Working Paper: From fixed to state-dependent duration in public-private partnerships (2017)
Working Paper: From fixed to state-dependent duration in public-private partnerships (2015)
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