How to Design Public-Private Partnerships in a Warming World? - When Infrastructure Becomes a Really “Hot” Topic

David Martimort and Stephane Straub

No 2011/25, Working Papers from Maastricht School of Management

Abstract: We analyze how the deep current scientific uncertainty regarding future climate conditions affects the design of Public Private Partnerships (PPPs) contracts between a government (principal) and a firm (agent), especially in infrastructure sectors that are highly sensitive to such changing weather conditions. Consistently with the literature on uncertainty and irreversibility, the prospect of future, uncertain productivity shocks that affect the returns on the firm’s effort in the future creates an option value of delaying efforts. By designing dynamic intertemporal incentive schemes for his agent, the principal can play on this option value. Whether this option value is exacerbated or not in an agency context depends on the properties of the agent’s cost of efforts.

Keywords: Public-private partnerships; global warming; option value; principal-agent. (search for similar items in EconPapers)
JEL-codes: D82 H44 O13 Q54 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-11
New Economics Papers: this item is included in nep-cta, nep-env and nep-ppm
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http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2011-25.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:msm:wpaper:2011/25

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