Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the authors and are published to elicit comments and to further debate. There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered.

Scaling up funding for clean energy projects in developing and emerging countries via PPPs: costs, benefits, challenges and some cases

“…4 PPP schemes and modalities other than BuildOperate-Transfer (BOT) include for example: Build-Own-Operate-Transfer (BOOT), BuildRent-Own-Transfer (BROT), Build-Lease-Operate-Transfer (BLOT), Build-Transfer-Operate (BTO). 5 A concession is the right granted by the host government for a private company to undertake a public sector project and operate it over an agreed period. 6 For a comprehensive discussion on BOTs see Delmon (2009) i.e.…”

“…While doing so, the government could at least in theory: (1) utilize the better skills and better management from the private sector which may lead to increased efficiency for the project in a competitive environment; (2) access private sector funds to undertake more projects than it would be possible with public funds alone -this can contribute to fiscal stabilization, and increase investment and growth; (3) provide more affordable and better services to end-users; and (4) share risks with the private sector (see Leruth, 2009; de Palma, Leruth & Prunier, 2009;Estache, 2005).…”

“…To engage in cooperation, the public and private sectors can employ several different schemes 4 5 , i.e. the right for a private firm to undertake a public sector project and operate it over an agreed period of time.…”

Innovation Systems in Small Catching-Up Economies

“…With pressure on physical infrastructure and limited resources, the government may want to cooperate with the private sector to help fi nance, build, and/or operate public assets. While doing this, the government could, for example, (1) utilize the better skills in the private sector and better management that may lead to increased effi ciency for the project in a more competitive environment, (2) access private sector funds to undertake more projects than possible with public funds alone -this can contribute to fi scal stabilization, and increase investments and growth, (3) provide more affordable and better services to end-users, and (4) share risks with the private sector (see, for example, Leruth 2009 ;de Palma et al 2009 ;Estache 2005 ) .…”

Capital Intensive Clean Energy Projects: Some Costs, Benefits and Challenges of Using Public-Private Partnerships

“…While doing so, the government could at least in theory: (1) utilize the better skills and better management from the private sector that may lead to increased efficiency for the project in a competitive environment, (2) access private sector funds to undertake more projects than would be possible with public funds alone -this can contribute to fiscal stabilization, and increase investment and growth, (3) provide more affordable and better services to end-users, and (4) share risks with the private sector (see, for example, Leruth, 2009;de Palma et al, 2009;Estache, 2005).…”