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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"

Abstract: A government delegates a build-operate-transfer project to a private Örm. In the contracting stage, the operating cost is unknown. The Örm can increase the likelihood of facing a low cost, rather than a high cost, by exerting costly e§ort when building the infrastructure. Once this is in place, the Örm learns the true cost and begins to operate. We show that, under limited commitment, if the break-up of the partnership is su¢ciently costly to the government and/or information problems are su¢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)
Pages: 277
Date: 2015-01, Revised 2015-01
New Economics Papers: this item is included in nep-mic, nep-ppm and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

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Related works:
Journal Article: From fixed to state‐dependent duration in public‐private partnerships (2017) Downloads
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) Downloads
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