ON THE OPTIMAL RISK ALLOCATION IN PUBLIC PRIVATE PARTNERSHIPS

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Published: 2016-05-07

Page: 121-134


WISTON ADRIÁN RISSO *

Institute of Economics, IECON, Joaquín Requena 1375, C.P. 11200, Montevideo, Uruguay.

*Author to whom correspondence should be addressed.


Abstract

Public-private partnerships (PPPs) are long-term partnerships between the public and private sector. Government has to analyze the convenience of entering in this modality instead of the traditional procurement. Value for Money (VfM) is a widely applied tool to evaluate this convenience. However, this modality depends on the risk allocation between the public and the private sector. The present paper analyses the conditions to find the optimal level of risk transferred to private sector in a PPP. This value increases with cost overrun, annual cost percentage and the government discounted rate and it is decreasing with the level of risk and a risk value parameter. When the CAPM and the GARCH-M models are considered this value is decreasing with beta, market return, risk premium but it is increasing with the risk free rate.

Keywords: Risk allocation, value for money, PPP


How to Cite

RISSO, W. A. (2016). ON THE OPTIMAL RISK ALLOCATION IN PUBLIC PRIVATE PARTNERSHIPS. Journal of Global Economics, Management and Business Research, 7(2), 121–134. Retrieved from https://ikprress.org/index.php/JGEMBR/article/view/2989

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