The theory of incentives applied to the transport sector

Building upon Iossa and Martimort (2008), we study the main incentive issues and the form of optimal contracts for Public Private Partnerships (PPPs) in transports. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses unobservable efforts in infrastructure and service quality. We begin by analyzing the effect on incentives and risk transfer of bundling building and operation into a single contract. We consider the factors that affect the optimal allocation of demand risk and their implications for the choice of contract length. We discuss the dynamics of PPP contracts and how the risk of regulatory opportunism affects contract design and incentives

The simple micro-economics of public-private partnerships

We build a unified theoretical framework to analyze the main incentive issues in Public Private Partnerships (PPPs) and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse agent chooses unobservable efforts in cost reduction and quality improvement. We begin by studying the effect on incentives and risk transfer of bundling building and operation into a single contract, allowing for different assumptions on the contractual framework and the quality of the information held by the government. We then extend the basic model in several directions. We consider the factors that affect the optimal allocation of demand risk and their implications for the use of user charges and the choice of contract length. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in long-term PPP agreements and the dynamics of PPP contracts, including cost overruns. We also consider how the institutional environment, and specifically the risk of regulatory opportunism, affects contract design and incentives. We conclude with some policy implications on the desirability of PPPs

Mechanism design with private communication

We investigate the consequences of assuming "private" communication between the principal and each of his agents in an otherwise standard mechanism design setting.Doing so simplifies significantly optimal mechanisms and institutions. Moreover, it restores continuity of the principal's payoff and of the optimal mechanism with respect to the information structure while still maintaining the useful role of correlation to better extract the agents' information rent. We first prove a "Revelation Principle with private communication" that characterizes the set of allocations implementable under private communication by means of simple "non-manipulability constraints". We also demonstrate a "Taxation Principle" which helps drawing some links between private communication and limited commitment on the principal's side. Equipped with those tools, we derive optimal non-manipulable mechanisms in various environments (unrelated projects, auctions, team production).MECHANISM DESIGN;PRIVATE COMMUNICATION