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Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships

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  • André De Palma
  • Guillaume Prunier
  • Mr. Luc E. Leruth

Abstract

There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered.

Suggested Citation

  • André De Palma & Guillaume Prunier & Mr. Luc E. Leruth, 2009. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," IMF Working Papers 2009/177, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/177
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    Cited by:

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    3. Demirag, Istemi & Khadaroo, Iqbal & Stapleton, Pamela & Stevenson, Caral, 2011. "Risks and the financing of PPP: Perspectives from the financiers," The British Accounting Review, Elsevier, vol. 43(4), pages 294-310.
    4. Verweij, Stefan & Meerkerk, Ingmar van, 2020. "Do public-private partnerships perform better? A comparative analysis of costs for additional work and reasons for contract changes in Dutch transport infrastructure projects," Transport Policy, Elsevier, vol. 99(C), pages 430-438.
    5. Raymond Deneckere & André de Palma & Luc Leruth, 2016. "Risk Sharing in an Adverse Selection Model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01393213, HAL.
    6. Shrestha, Asheem & Chan, Toong-Khuan & Aibinu, Ajibade A. & Chen, Chuan, 2017. "Efficient risk transfer in PPP wastewater treatment projects," Utilities Policy, Elsevier, vol. 48(C), pages 132-140.
    7. Xiuqin Wang & Shufan Wang & Ying Gao, 2023. "Optimal equity structure of PPP projects when private-sector shareholders’ “investor-contractor” dual roles is considered," Construction Management and Economics, Taylor & Francis Journals, vol. 41(11-12), pages 910-925, December.
    8. Eva I. Hoppe & Patrick W. Schmitz, 2013. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 56-74, March.
    9. Arshad Ali Javed & Patrick T.I. Lam & Albert P.C. Chan, 2014. "Change negotiation in public-private partnership projects through output specifications: an experimental approach based on game theory," Construction Management and Economics, Taylor & Francis Journals, vol. 32(4), pages 323-348, April.

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