We study the effects of granting an exit option that enables the private party to early terminate a PPP project if it turns out to be loss-making. In a continuous-time setting with hidden information about stochastic operating profits, we show that a revenue-maximizing government can optimally trade-off direct subsidies for capital investment against the right of opting out the PPP. In particular, the exit option, acting as a risk-sharing device, can soften agency problems and increase the value-for-money of public spending, even when accounting for the budgetary resources needed to resume the project in the event of early termination by the contractor.
Termination fees and contract design in public – private partnerships
M. Buso;C. Dosi;M. Moretto
2018
Abstract
We study the effects of granting an exit option that enables the private party to early terminate a PPP project if it turns out to be loss-making. In a continuous-time setting with hidden information about stochastic operating profits, we show that a revenue-maximizing government can optimally trade-off direct subsidies for capital investment against the right of opting out the PPP. In particular, the exit option, acting as a risk-sharing device, can soften agency problems and increase the value-for-money of public spending, even when accounting for the budgetary resources needed to resume the project in the event of early termination by the contractor.File | Dimensione | Formato | |
---|---|---|---|
SSRN-id3313335.pdf
accesso aperto
Licenza:
Accesso libero
Dimensione
639.92 kB
Formato
Adobe PDF
|
639.92 kB | Adobe PDF | Visualizza/Apri |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.