Contract design to prevent underinvestment in Public-Private-Partnerships
Ågren, Robert LU
(2011)
CIB TG72 /ARCOM Public Private Partnerships
p.107-118
- Abstract
- Underinvestment happens when an investor abstain from investing in an asset, even if the investment is beneficial for the customer, because it does not perceive a profitable return on the specific investment. The risk for underinvestment is high in projects which rely on high asset specificity and towards the end of contract lifespan. This paper builds upon a qualitative analysis of documentation around a multimillion dollar construction project, where contractual mechanisms are investigated to determine if they could prevent underinvestment due to high asset specificity. The study shows that underinvestment in the project is prevented by unilateral options for the public authority to buy the property at different milestones during the... (More)
- Underinvestment happens when an investor abstain from investing in an asset, even if the investment is beneficial for the customer, because it does not perceive a profitable return on the specific investment. The risk for underinvestment is high in projects which rely on high asset specificity and towards the end of contract lifespan. This paper builds upon a qualitative analysis of documentation around a multimillion dollar construction project, where contractual mechanisms are investigated to determine if they could prevent underinvestment due to high asset specificity. The study shows that underinvestment in the project is prevented by unilateral options for the public authority to buy the property at different milestones during the contractual lifespan. In addition there are joint project groups to implement a concept of partnering to reduce asymmetric information during investment decisions. In conclusion, the contract gives the impression of dealing with underinvestment. Nevertheless, there are some draw backs due to the financial setup of the public authority and it exposes the private party to some contractual risks due to high asset specificity which could risk underinvestment. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/2335753
- author
- Ågren, Robert
LU
- organization
- publishing date
- 2011
- type
- Chapter in Book/Report/Conference proceeding
- publication status
- published
- subject
- keywords
- Economic analysis of law, Procurement, Contracting, Public-private partnership
- host publication
- [Host publication title missing]
- editor
- Akintoye, Akintola ; Liyanage, Champika and Renukappa, Suresh
- pages
- 107 - 118
- publisher
- University of Central Lancashire
- conference name
- CIB TG72 /ARCOM Public Private Partnerships
- conference location
- Preston, United Kingdom
- conference dates
- 2011-10-12
- ISBN
- 9781901922813
- language
- English
- LU publication?
- yes
- id
- 2a2dd1cc-409a-4b78-bb0d-031be463c877 (old id 2335753)
- date added to LUP
- 2016-04-04 10:30:26
- date last changed
- 2018-11-21 20:59:09
@inproceedings{2a2dd1cc-409a-4b78-bb0d-031be463c877,
abstract = {{Underinvestment happens when an investor abstain from investing in an asset, even if the investment is beneficial for the customer, because it does not perceive a profitable return on the specific investment. The risk for underinvestment is high in projects which rely on high asset specificity and towards the end of contract lifespan. This paper builds upon a qualitative analysis of documentation around a multimillion dollar construction project, where contractual mechanisms are investigated to determine if they could prevent underinvestment due to high asset specificity. The study shows that underinvestment in the project is prevented by unilateral options for the public authority to buy the property at different milestones during the contractual lifespan. In addition there are joint project groups to implement a concept of partnering to reduce asymmetric information during investment decisions. In conclusion, the contract gives the impression of dealing with underinvestment. Nevertheless, there are some draw backs due to the financial setup of the public authority and it exposes the private party to some contractual risks due to high asset specificity which could risk underinvestment.}},
author = {{Ågren, Robert}},
booktitle = {{[Host publication title missing]}},
editor = {{Akintoye, Akintola and Liyanage, Champika and Renukappa, Suresh}},
isbn = {{9781901922813}},
keywords = {{Economic analysis of law; Procurement; Contracting; Public-private partnership}},
language = {{eng}},
pages = {{107--118}},
publisher = {{University of Central Lancashire}},
title = {{Contract design to prevent underinvestment in Public-Private-Partnerships}},
year = {{2011}},
}