The Basic Public Finance of Public-Private Partnerships

64 Pages Posted: 23 Jul 2007 Last revised: 5 Oct 2007

See all articles by Eduardo M. R. A. Engel

Eduardo M. R. A. Engel

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Alexander Galetovic

Universidad Adolfo Ibáñez; Stanford University - The Hoover Institution on War, Revolution and Peace; University of Padua - CRIEP

Ronald D. Fischer

University of Chile - Center of Applied Economics (CEA)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2007

Abstract

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.

Suggested Citation

Engel, Eduardo M. and Galetovic, Alexander and Fischer, Ronald D., The Basic Public Finance of Public-Private Partnerships (July 2007). NBER Working Paper No. w13284. Available at SSRN: https://ssrn.com/abstract=1002063

Eduardo M. Engel (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-5595 (Phone)
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Alexander Galetovic

Universidad Adolfo Ibáñez ( email )

Peñalolén
Santiago
Chile

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

University of Padua - CRIEP ( email )

Padua
Italy

Ronald D. Fischer

University of Chile - Center of Applied Economics (CEA) ( email )

Republica 701
Casilla 2777
Santiago
Chile
+56/2/678 4055 (Phone)
+56/2/689 7895 (Fax)

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