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The Optimality of Public-Private Partnerships under Financial and Fiscal Constraints

Marco Buso () and Luciano Greco ()
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Marco Buso: Catholic University of Milan & CIFREL & CRIEP

No 276, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: The government may delegate two sequential tasks (e.g., building and operating an infrastructure) to the same or different agents (i.e., partnership versus sequential con- tracts). Agents are risk-neutral but face financial constraints, whereas the government’s contractual capacity may be limited by the renegotiation-proof and fiscal constraints. By relying on history-dependent incentives, the partnership contract corrects moral hazard more effectively than sequential contracts. Thus, it is socially preferred unless bundling different tasks deteriorates the agent’s financial conditions. Our results shed new light on the role of firms’ financial and government’s fiscal conditions in driving the cost-benefit analysis of public-private partnerships.

Keywords: Sequential moral hazard; Bundling; Limited liability; Budget constraint; Memory contracts (search for similar items in EconPapers)
JEL-codes: D86 H11 H57 L33 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-11
New Economics Papers: this item is included in nep-mic and nep-ppm
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