Government guarantees and risk sharing in public–private partnerships

Ryuta Takashima · Kyoko Yagi · Hiroshi Takamori

61 citations0/0 files storedReview of Financial Economics

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Public-Private Partnership Projects Capital Investment and Risk Analysis Fiscal Policy and Economic Growth

Abstract

Abstract We study the interaction between a private firm and a government when they time an investment decision while in a public–private partnership. We use a real options framework and consider the degree of sharing in the cost of the investment and the risk in the operation of the project. The degree of sharing influences the investment timing and the project value. When the guarantee of the government is large and/or the cost sharing rate for the private firm is low, then the private firm‐maximizing policy exercises the investment option earlier than the project value‐maximizing policy.

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References

1994Investment Under Uncertainty.1994Investment under Uncertainty 1994Corporate Debt Value, Bond Covenants, and Optimal Capital Structure 1996Project Financing: Asset-Based Financial Engineering 2004Real options, agency conflicts, and optimal capital structure 2000Project flexibility, agency, and competition : new developments in the theory and application of real options 2008Build, Operate, Transfer: Paving the Way for Tomorrow's Infrastructure 1998Valuation of interacting real options in a tollroad infrastructure project

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