Dynamic Regulation of Public Franchises with Imperfectly Correlated Demand Shocks

Marco Buso, Cesare Dosi and Michele Moretto
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Marco Buso: Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP)
Cesare Dosi: Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP)

No 2023.03, Working Papers from Fondazione Eni Enrico Mattei

Abstract: In a continuous-time setting, we study the design of a dynamic contract between a government and a private entity, wherein the latter commits to pay the government in return for the exclusive right to sell a service by operating a public facility. Private revenues are modelled as depending on the unobservable ability to seize market opportunities and on imperfectly correlated changes in consumers’ preferences. We show that optimal regulation requires an appropriate combination of fixed and variable payments to the government, acting together both as an information revelation mechanism and as a risk sharing device.

Keywords: Public-private partnerships; Public franchises; Adverse selection; Dynamic contracts; Persistent demand shocks (search for similar items in EconPapers)
JEL-codes: D81 D82 D86 H54 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-cta and nep-reg
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Working Paper: Dynamic Regulation of Public Franchises with Imperfectly Correlated Demand Shocks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2023.03

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