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The optimality of public–private partnerships under financial and fiscal constraints

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  • Marco Buso
  • Luciano Greco

Abstract

The government may delegate two sequential tasks (e.g., building and operating an infrastructure) to the same or different agents (i.e., partnership vs. sequential contracts). Agents are risk‐neutral but face financial constraints, whereas the government's contractual capacity may be limited by the renegotiation‐proofness 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.

Suggested Citation

  • Marco Buso & Luciano Greco, 2023. "The optimality of public–private partnerships under financial and fiscal constraints," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(4), pages 856-881, October.
    • Handle: RePEc:bla:jemstr:v:32:y:2023:i:4:p:856-881
    DOI: 10.1111/jems.12520
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    References listed on IDEAS

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    Cited by:

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    2. Schmitz, Patrick W., 2023. "Incentivizing research with (un)conditional teaching duties: Punishment or rent extraction?," Economics Letters, Elsevier, vol. 224(C).

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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