Munich Personal RePEc Archive

Overcoming Opportunism in Public-Private Project Finance

Moszoro, Marian (2013): Overcoming Opportunism in Public-Private Project Finance. Published in: Journal of Applied Corporate Finance , Vol. 25, No. 1 (March 2013): pp. 89-96.

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Abstract

Opportunism, either governmental or private, is a powerful deterrent against public-private project financing, especially when considering the scale of the investment in infrastructure. The parties can, however, secure themselves against opportunism of the counter-party by exchanging an exit (put) option for the private investor and a bail-out (call) option for the public agent on the private investor’s shares. These over-the-counter options combine the stability of long-term contracts and the flexibility of short-term contracts. The exit/bail-out option mechanism reduces entry barriers by streamlining incomplete long-term contracts and avoiding contractual problems related to bounded rationality and opportunism.

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