Financing Costs and the Efficiency of Public-Private Partnerships
21 Pages Posted: 18 Nov 2020
Date Written: November 17, 2020
The paper compares provision of public infrastructure via public-private partnerships (PPPs) with provision under government management. Due to soft budget constraints of government management, PPPs exert more effort and therefore have a cost advantage in building infrastructure. At the same time, hard budget constraints for PPPs introduce a bankruptcy risk and bankruptcy costs. Consequently, if bankruptcy costs are high, PPPs may be less efficient than public management, although this does not result from PPPs’ higher interest costs.
Keywords: Public-Private Partnerships, Infrastructure, Financing Costs, Default
JEL Classification: H11, H54, G33
Suggested Citation: Suggested Citation