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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. 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.
    2. 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.
    3. Pierre Guislain & Michel Kerf, 1995. "Concessions - The Way to Privatize Infrastructure Sector Monopolies," World Bank Publications - Reports 11648, The World Bank Group.
    4. 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.
    5. 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.
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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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