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Article
Balancing Private and Public Interests in Public-private Partnership Contracts Through Optimization of Equity Capital Structure
Transportation Research Record: Journal of the Transportation Research Board
  • Deepak Sharma, University of Maryland at College Park
  • Qingbin Cui, University of Maryland at College Park
  • Lijian Chen, University of Dayton
  • Jay Lindly, University of Alabama - Tuscaloosa
Document Type
Article
Publication Date
1-1-2010
Abstract

Capital structure and revenue-sharing agreements lie in the essence of balancing public and private interests in public-private partnership (PPP) contracts. In the United States, many PPP projects may not be fully self-financed through tolls or other user fees because of insufficient revenue streams. With a limited debt capacity secured by toll revenues, most PPP projects must be supported by both private equity investments and public funds. The equity structure is critical in a PPP contract because it implies risk and profit sharing and therefore provides a mechanism for private incentive and protection of the public interest. This paper presents a structured approach to determining the debt-equity investment in PPP projects. Scenarios are generated by using linear programming and probability programming models to reach the optimal equity structure under risk and uncertainty. The I-10 connector project is used as a case study to demonstrate the optimization process. The model is especially useful for public agencies to (a) estimate the range of private equity investment, (b) determine the target equity structure, and (c) document the benefits and costs of private financing for a successful PPP contract.

Inclusive pages
60-66
ISBN/ISSN
0361-1981
Comments

Permission documentation is on file.

Publisher
Transportation Research Board of the National Academies
Peer Reviewed
Yes
Citation Information
Deepak Sharma, Qingbin Cui, Lijian Chen and Jay Lindly. "Balancing Private and Public Interests in Public-private Partnership Contracts Through Optimization of Equity Capital Structure" Transportation Research Record: Journal of the Transportation Research Board Vol. 2151 Iss. 1 (2010)
Available at: http://works.bepress.com/lijian_chen/14/