Skip to main content
padlock icon - secure page this page is secure

Risk pricing inefficiency in public–private partnerships

Buy Article:

$55.00 + tax (Refund Policy)

There is a drive towards delivering and operating public infrastructure through public–private partnership (PPP) rather than traditional public procurement. The assessment of the value for money achieved by the two alternative approaches rests in the cost of financing and their efficiency in delivery and operation. This paper focuses on the cost of financing, in particular the cost associated with transferring risk from the public to private sphere. If capital markets were efficient and complete, the cost of public (government) and private financing should be the same, with the relative delivery and operational efficiency remaining as the primary determinant of value-for-money. Evidence suggests, however, that the risk transfer to a PPP entails an inefficient risk pricing premium which goes beyond the direct cost of financing. We argue that a high price for PPPs results from large risk transfers, risk treatment within the private sector, and uncertainty around the past and future performance of public–private consortia. The corollary is that the efficiency gains from a PPP must be much higher than commonly expected to deliver a greater value for the money than under a traditional approach.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Keywords: D81; G15; H43; L32; Public–private partnership; cost of capital; market efficiency; risk pricing; risk transfer

Document Type: Research Article

Affiliations: 1: International Transport Forum at the OECD, OECD, Paris, France 2: Department of Economics, George Mason University, Fairfax, VA, USA

Publication date: May 4, 2018

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more