Funding and Financing Infrastructure : The Joint Use of Public and Private Finance
The paper addresses the issue of the feasible level of private finance in a contracting model of infrastructure finding and financing. It characterizes the structure of financial contracts, deriving the conditions under which both public and privat...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/176101530040441739/Funding-and-financing-infrastructure-the-joint-use-of-public-and-private-finance http://hdl.handle.net/10986/29949 |
| Summary: | The paper addresses the issue of the
feasible level of private finance in a contracting model of
infrastructure finding and financing. It characterizes the
structure of financial contracts, deriving the conditions
under which both public and private finance coexist. A key
feature is that access to outside finance and the regulatory
decision on pricing and the amount of public subsidy, hence
the extent of price recovery, are jointly determined.
Mobilizing private finance requires a combination of price
for the service and subsidy to the service provider that is
large enough, exacerbating the fundamental tensions between
financial viability through cost recovery and social
inclusion. The paper then shows that the feasibility
trade-off responds in non-trivial ways to changes in the
economic and institutional environment likely to occur along
the development path. While improvements along some of these
dimensions, notably in the efficiency of bankruptcy
procedures, appear to ease access to private finance,
others, such as the cost of public funds, actually makes
public finance more efficient. Using project data from the
PPI database including information on the financial
structure, the authors uncover an inverse U-shaped pattern
in the share of private finance, peaking for countries in
the upper-middle income range, which echoes their
theoretical findings. |
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