Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?

Authors

Marco Buso, Interuniversity Centre for Public Economics (CRIEP) and Interdepartmental Centre G. Levi Cases for Energy, Economics and Technology, University of Padova
Cesare Dosi, Department of Economics and Management, University of Padova and Centro di Ricerca Interuniversitario sull’Economia Pubblica (CRIEP), Italy
Michele Moretto, University of PadovaFollow

Date of This Version

8-28-2020

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 …financially loss-making. In a continuous-time setting with hidden information about operating profi…ts, we show that an exit option, acting as a risk-sharing device, can soften agency problems and, in so doing, accelerate investment and increase the government’'s expected payoff, even while taking into account the costs that the public sector will have to meet in the future to take direct responsibility on service provision.

Recommended Citation

Buso, Marco; Dosi, Cesare; and Moretto, Michele, "Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?" (August 28, 2020). Fondazione Eni Enrico Mattei Working Papers. Paper 1291.
https://services.bepress.com/feem/paper1291