Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273160 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 03.2023
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
In a continuous-time setting, we study the design of a dynamic contract between a government and a private entity, wherein the latter commits to pay the government in return for the exclusive right to sell a service by operating a public facility. Private revenues are modelled as depending on the unobservable ability to seize market opportunities and on imperfectly correlated changes in consumers' preferences. We show that optimal regulation requires an appropriate combination of fixed and variable payments to the government, acting together both as an information revelation mechanism and as a risk sharing device.
Subjects: 
Public-private partnerships
Public franchises
Adverse selection
Dynamic contracts
Persistent demand shocks
JEL: 
D81
D82
D86
H54
Document Type: 
Working Paper

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