Buso M., Dosi C., Moretto M. (2020).

Do Exit Options Increase the Value-For-Money of Public-Private Partnerships?. Working Paper, No.003.2020, Fondazione Eni Enrico Mattei (FEEM), Milano

 

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 profts, 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.