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Overcoming Opportunism in Public-Private Project Finance

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  • Moszoro, Marian

Abstract

Opportunism, either governmental or private, is a powerful deterrent against public-private project financing, especially when considering the scale of the investment in infrastructure. The parties can, however, secure themselves against opportunism of the counter-party by exchanging an exit (put) option for the private investor and a bail-out (call) option for the public agent on the private investor’s shares. These over-the-counter options combine the stability of long-term contracts and the flexibility of short-term contracts. The exit/bail-out option mechanism reduces entry barriers by streamlining incomplete long-term contracts and avoiding contractual problems related to bounded rationality and opportunism.

Suggested Citation

  • Moszoro, Marian, 2013. "Overcoming Opportunism in Public-Private Project Finance," MPRA Paper 102725, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102725
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    References listed on IDEAS

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    1. Richard A. Posner, 1972. "The Appropriate Scope of Regulation in the Cable Television Industry," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 98-129, Spring.
    2. Pierre Guislain & Michel Kerf, 1995. "Concessions - The Way to Privatize Infrastructure Sector Monopolies," World Bank Publications - Reports 11648, The World Bank Group.
    3. Pablo T. Spiller, 2009. "An Institutional Theory of Public Contracts: Regulatory Implications," Chapters, in: Claude Ménard & Michel Ghertman (ed.), Regulation, Deregulation, Reregulation, chapter 3, Edward Elgar Publishing.
    4. Oliver E. Williamson, 1976. "Franchise Bidding for Natural Monopolies -- in General and with Respect to CATV," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 73-104, Spring.
    5. Marian W. Moszoro & Pablo T. Spiller, 2012. "Third-Party Opportunism and the Nature of Public Contracts," NBER Working Papers 18636, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Alexander Moore & Stéphane Straub & Jean-Jacques Dethier, 2014. "Regulation, renegotiation and capital structure: theory and evidence from Latin American transport concessions," Journal of Regulatory Economics, Springer, vol. 45(2), pages 209-232, April.
    2. Julio Cezar Russo & Marco Antonio Guimarães Dias & André Barreira da Silva Rocha & Fernando Luiz Cyrino Oliveira, 2018. "Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach," Group Decision and Negotiation, Springer, vol. 27(6), pages 949-979, December.

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    More about this item

    Keywords

    Noncooperative Games; Opportunism; Exit and Bail-out Options; Public-Private Partnerships; Contestable Markets;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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