Working Paper: CEPR ID: DP15288
Authors: Viral Acharya; Cecilia Parlatore; Suresh M. Sundaresan
Abstract: We examine the optimal financing of infrastructure when governments have limited financial commitmentand can expropriate rents from private sector firms that manage infrastructure. While privatefirms need incentives to implement projects well, governments need incentives to limit expropriation.This double moral hazard limits the willingness of outside investors to fund infrastructure projects. Optimalfinancing involves government guarantees to investors against project failure to incentivize thegovernment to commit not to expropriate which improves private sector incentives and project quality.The model captures several other features prevalent in infrastructure financing such as governmentco-investment, tax subsidies, development rights, and cross-guarantees.
Keywords: double moral hazard; public private partnerships; government guarantees; development rights; general obligation bonds; revenue only bonds
JEL Codes: D82; G30; G32; G38; H20; H41; H54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government guarantees (H81) | improved private sector incentives (E69) |
| government co-investment (H54) | scale of financing (G32) |
| tax subsidies (H20) | improved project feasibility (O22) |