1-4 September 2015
Angers - France
Europe/Paris timezone

Optimal Contract with Moral Hazard in Public Private Partnerships

Not scheduled
30m
Angers - France

Angers - France

Speaker

Caroline Hillairet (CMAP ecole polytechnique)

Description

Public-Private Partnership (PPP) is a contract between a public entity and a consortium, in which the public outsources the construction and the maintenance of an equipment (hospital, university, prison...). One drawback of this contract is that the public may not be able to observe the effort of the consortium but only its impact on the social welfare of the project. We aim to characterize the optimal contract for a PPP in this setting of asymmetric information between the two parties. This leads to a principal-agent problem with moral hazard. Considering a wider set of information for the public and using martingale arguments in the spirit of Sannikov, the maximisation problem can be reduced to a classic stochastic control problem, that is solved numerically. It is then proved that for the optimal contract, the effort of the consortium is explicitly characterized. In particular, it is shown that the optimal rent is not a linear function of the effort, contrary to some models of the economic literature on PPP contracts. This is a joint work with I. Hajjej, M. Mnif and M.Pontier

Primary author

Caroline Hillairet (CMAP ecole polytechnique)

Presentation Materials

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