Working Paper: NBER ID: w30131
Authors: Viral V. Acharya; Cecilia Parlatore; Suresh Sundaresan
Abstract: We examine the optimal financing of infrastructure when governments have limited financial commitment and can expropriate rents from private sector firms that manage infrastructure. While private firms 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. Optimal financing involves government guarantees to investors against project failure to incentivize the government 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 government co-investment, tax subsidies, development rights, and cross-guarantees.
Keywords: No keywords provided
JEL Codes: D82; G30; G32; G38; H20; H41; H44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government guarantees (H81) | Willingness of private financiers to invest in infrastructure (H54) |
| Severity of moral hazard in the private sector (G52) | Government's incentives to commit to non-expropriation (H13) |
| Increased private sector risk (G32) | Government commitment needs (E61) |
| Co-investment by the government (H54) | Project financing (G32) |
| Tax subsidies and bundling of development rights (H20) | Financing conditions (G32) |