Engel, Eduardo M. R. A. Fischer, Ronald D. Galetovic, Alexander
Year of Publication:
Center Discussion Paper No. 957
Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.
Bundling cost of public funds demsetz auction minimum revenue guarantees privatization revenue and profit caps scope of government, subsidies.