Public-Private Partnerships and the Privatization of Financing: An Incomplete Contracts Approach

41 Pages Posted: 13 Sep 2007 Last revised: 13 Nov 2008

See all articles by Jean-Etienne de Bettignies

Jean-Etienne de Bettignies

University of Toronto - Rotman School of Management; University of Toronto at Scarborough - Division of Management; Queen's University - Smith School of Business

Thomas W. Ross

University of British Columbia (UBC) - Sauder School of Business

Date Written: August 8, 2007

Abstract

Governments have begun to embrace public-private partnerships (P3s) as vehicles for providing public services. This paper considers the controversial question of when private financing of public projects is optimal. Private development can dominate public financing through more efficient termination decisions for bad projects, resolving soft budget constraint problems. Due to contractual incompleteness, on the other hand, private developers cannot commit to large debt repayments, and hence can finance only a subset of valuable projects. Public developers, who do not face the same commitment problems, can finance a larger set of projects.

Keywords: public-private partnerships, incomplete contracts, soft budget constraints

JEL Classification: H11, G32, D23, L20

Suggested Citation

de Bettignies, Jean-Etienne and Ross, Thomas, Public-Private Partnerships and the Privatization of Financing: An Incomplete Contracts Approach (August 8, 2007). Queen's School of Business Research Paper No. 02-08, Available at SSRN: https://ssrn.com/abstract=1014270 or http://dx.doi.org/10.2139/ssrn.1014270

Jean-Etienne De Bettignies (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Scarborough - Division of Management

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Thomas Ross

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
(604) 822-8500 (Phone)
(604) 822-8521 (Fax)

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