Working Paper: NBER ID: w13284
Authors: Eduardo Engel; Ronald Fischer; Alexander Galetovic
Abstract: Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.
Keywords: Public-Private Partnerships; Risk Sharing; Government Budget
JEL Codes: H21; H54; L51; R42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public-Private Partnerships (PPPs) do not relieve public funds (H44) | Long-term budgetary implications remain unchanged (H69) |
| Optimal risk-sharing contract can be implemented via a competitive auction (D44) | Balancing user fees and subsidies effectively (H29) |
| Impact of a PPP on government budget is similar to conventional provision of infrastructure (H54) | Most or all risk is borne by the government (H81) |
| Optimal contract does not provide full insurance to franchise holder (L14) | Trade-off between risk and subsidy levels (H23) |
| Structure of the optimal contract (D86) | Efficiency of resource allocation in public finance (D61) |