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Public-private partnerships and the privatization of financing: An incomplete contracts approach

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  • de Bettignies, Jean-Etienne
  • Ross, Thomas W.

Abstract

Governments have begun to embrace public-private partnerships (P3s) as vehicles for providing public services. This paper considers the controversial question of when private financing of public projects is optimal. Private development can dominate public financing through more efficient termination decisions for bad projects, resolving soft budget constraint problems. Due to contractual incompleteness and externalities, on the other hand, private developers cannot commit to large debt repayments, and hence can finance only a subset of valuable projects. Public developers, who do not face the same commitment problems, can finance a larger set of projects.

Suggested Citation

  • de Bettignies, Jean-Etienne & Ross, Thomas W., 2009. "Public-private partnerships and the privatization of financing: An incomplete contracts approach," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 358-368, May.
    • Handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:358-368
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    Cited by:

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    2. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    3. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 1-18, September.
    4. Alfons J. Weichenrieder & Markus Kerber & Alfons Weichenrieder, 2014. "Private Investoren für öffentliche Projekte: Schattenhaushalt oder Notwendigkeit?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(22), pages 03-08, November.
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    6. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, September.
    7. Anna Matas & Ginés de Rus & Stef Proost & Salvador Bertoméu-Sánchez & Antonio Estache, 2018. "The Financing of Infrastructure / La financiación de las infraestructuras / El finançament de les infraestructures," IEB Reports ieb_report_1_2018, Institut d'Economia de Barcelona (IEB).
    8. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    9. Benedetto Manganelli & Sabina Tataranna & Marco Vona & Francesco Paolo Del Giudice, 2022. "An Innovative Approach for the Enhancement of Public Real Estate Assets," Sustainability, MDPI, vol. 14(14), pages 1-14, July.
    10. Jean-Etienne de Bettignies & Thomas W. Ross, 2010. "The Economics of Public–Private Partnerships: Some Theoretical Contributions," Chapters, in: Graeme A. Hodge & Carsten Greve & Anthony E. Boardman (ed.), International Handbook on Public–Private Partnerships, chapter 7, Edward Elgar Publishing.
    11. Dmitri Vinogradov & Elena Shadrina, 2018. "Public-Private Partnerships as Collaborative Projects: Testing the Theory on Cases from EU and Russia," International Journal of Public Administration, Taylor & Francis Journals, vol. 41(5-6), pages 446-459, April.
    12. Chen, Zhenhua & Daito, Nobuhiko & Gifford, Jonathon L., 2014. "Do State Fiscal Constraints Affect Implementation of Highway Public-Private Partnerships? A Panel Fixed Logit Assessment," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 53(2).
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    14. David Martimort & Flavio Menezes & Myrna Wooders & DANIEL DANAU & ANNALISA VINELLA, 2015. "Public-Private Contracting under Limited Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 78-110, February.
    15. Antonio Estache & Stéphane Saussier, 2014. "Public-Private Partnerships and Efficiency: A Short Assessment," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(3), pages 08-13, October.
    16. David Martimort & Stéphane Straub, 2016. "How To Design Infrastructure Contracts In A Warming World: A Critical Appraisal Of Public–Private Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(1), pages 61-88, February.
    17. Benedetto Manganelli & Francesco Tajani, 2014. "Optimised management for the development of extraordinary public properties," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 32(2), pages 187-201, February.
    18. Chen, Zhenhua & Daito, Nobuhiko & Gifford, Jonathan L., 2017. "Socioeconomic impacts of transportation public-private partnerships: A dynamic CGE assessment," Transport Policy, Elsevier, vol. 58(C), pages 80-87.
    19. repec:ces:ifodic:v:12:y:2014:i:3:p:19126463 is not listed on IDEAS
    20. Herrera Dappe,Matias & Melecky,Martin & Turkgulu,Burak, 2022. "Fiscal Risks from Early Termination of Public-Private Partnerships in Infrastructure," Policy Research Working Paper Series 9972, The World Bank.
    21. David Martimort & Stéphane Straub, 2016. "How To Design Infrastructure Contracts In A Warming World: A Critical Appraisal Of Public–Private Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 61-88, February.
    22. Herrera Dappe,Matias & Melecky,Martin & Turkgulu,Burak, 2022. "PPP Distress and Fiscal Contingent Liabilities in South Asia," Policy Research Working Paper Series 10137, The World Bank.
    23. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2017. "Analyzing risk in PPP provision of utility services: A social welfare perspective," Utilities Policy, Elsevier, vol. 48(C), pages 210-218.
    24. Antonio Estache & Stéphane Saussier, 2014. "Public-Private Partnerships and Efficiency: A Short Assessment," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(03), pages 08-13, October.
    25. Rodrigo Nobre Fernandez & André Carraro & Ronald Otto Hillbrecht, 2016. "Efficiency, cost and benefits in contracts of public-private partnerships [Efficiency, cost and benefits in contracts of public-private partnerships]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 26(2), pages 369-392, May-Augus.

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