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

Arbeitspapier

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 profits, 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 003.2020

Classification and Topics

• Classification: Wirtschaft ; Criteria for Decision-Making under Risk and Uncertainty ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
• Subject: Public Infrastructure Services ; Public-Private Partnerships ; Adverse Selection ; Real Options ; Early Termination Fees

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buso, Marco ; Dosi, Cesare ; Moretto, Michele
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/223630
• Last update: 10.03.2025, 11:43 AM CET