Why Are Developing World Private Finance Contracts So Difficult to Get Right?
Article from: TDM 5 (2007), in Infrastructure Investment & Dispute Management
Contracts for private sector participation in the operation of infrastructure ("PFI contracts") are, with some important exceptions, difficult to make work well in the developing world. It is enquired why this should be. The principal economic rationale for infrastructure privatisations - "Demsetz competition" - is reviewed. It is examined why that rationale may in some circumstances prove wanting. Market failures, enforcement problems, long contractual terms and regulatory weaknesses all hinder effective private participation. The conclusion drawn is that there are significant ...