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

By André De Palma, Guillaume Prunier, Luc E. Leruth

August 1, 2009

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André De Palma, Guillaume Prunier, and Luc E. Leruth Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships, (USA: International Monetary Fund, 2009) accessed September 19, 2024

Disclaimer: 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 author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Economic sectors, Expenditure, National accounts, Public financial management (PFM), Public investment and public-private partnerships (PPP), Public sector, Risks of public-private partnership, Transportation

Keywords: A number of risk, Construction risk, Demand risk, Europe, Exploitation company, Firm, Government, Government ownership, Government policy, Government to risk, Infrastructure financing, PPP partner, Principal-agent framework, Private sector, Private sector operator, Public investment and public-private partnerships (PPP), Public sector, Public-private partnerships, Renegotiation risk, Residual value risk, Risk, Risk classification, Risks of public-private partnership, Transportation, Transportation infrastructure, Value for money, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/177
Stock No:

WPIEA2009177
ISBN:

9781451873245
ISSN:

1018-5941

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