Working Paper: CEPR ID: DP13844
Authors: David Martimort; Stephane Straub; Marianne Fay
Abstract: We characterize the structure of financial and regulatory infrastructure contractsand derive conditions under which public and private finance coexist. This requires a combination of regulated prices and public subsidies sufficiently attractive for outside financierpointing at a fundamental trade-off between financial viability and social inclusion. Whileimprovements in the efficiency of bankruptcy procedures facilitate access to private finance,institutional changes lowering the cost of public funds make public finance more attractive.Project data from the PPI database provides support for our findings and reveals an inverseU-shaped pattern, with private finance peaking for countries in the upper-middle incomerange.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regulated prices + public subsidies (P22) | attractiveness of private financing (G32) |
| improvements in bankruptcy procedures (K35) | access to private finance (O16) |
| institutional changes that lower cost of public funds (H19) | attractiveness of public finance (H40) |
| cost of public funds decrease (H49) | reliance on public transfers increase (H55) |
| cost of public funds decrease (H49) | share of private finance decrease (G32) |
| improvements in institutional quality + reductions in corruption (O17) | levels of private finance increase (G21) |
| regulated prices increase (P22) | social inclusion decrease (I24) |
| income level (D31) | share of private finance (G32) |