A Public-Private-Partnership model with moral hazard of SPC and bank

This paper analyzes moral hazard problems in PPP (Private-Public-Partnership) projects. Moral hazard is classified into two types: the Special Purpose Company’s (SPC) and the bank’s moral hazard. In a regular tender process, the SPC’s moral hazard cannot be deterred. A reserve tender system can do it better in deterring the SPC’s moral hazard, though at the same time it might induce the bank’s moral hazard. Furthermore, the SPC’s moral hazard is triggered once the bank’s moral hazard occurs. The paper concludes that the bank’s monitoring is valid for the deterrence of the moral hazard of the SPC and the bank.