Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

3-2012

Publication Source

International Journal of Industrial Organization

Volume

30

Issue

2

Start Page

127

Last Page

136

DOI

10.1016/j.ijindorg.2011.04.005

Abstract

Over the last 20 years, developing countries have experienced the massive shift of financing and the operation of infrastructure from the public to the private sector. The paper analyzes how the government agency should structure the investment promotion policy. I develop a sequential contracting model between the government, investors and infrastructure providers and derive several properties of the optimal policy. The policy leaves investors uncertain about the project type and prescribes different levels of government support, in the form of tax or price distortions. However, the optimal policy does not change the expectations of investors about distribution of project returns. I characterize how the optimal policy depends on the revenue generation preferences of the government and the profitability of infrastructure projects in the country.

Copyright/Permission Statement

© 2012. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

infrastructure financing, sequential mechanisms, investment promotion, information disclosure

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Date Posted: 27 November 2017

This document has been peer reviewed.