Financing Costs and the Efficiency of Public-Private Partnerships

21 Pages Posted: 18 Nov 2020

See all articles by Besart Avdiu

Besart Avdiu

Goethe University Frankfurt

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: November 17, 2020

Abstract

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

Avdiu, Besart and Weichenrieder, Alfons J., Financing Costs and the Efficiency of Public-Private Partnerships (November 17, 2020). SAFE Working Paper No. 295, Available at SSRN: https://ssrn.com/abstract=3732107 or http://dx.doi.org/10.2139/ssrn.3732107

Besart Avdiu

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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