Date of Publication

12-2019

Document Type

Master's Thesis

Degree Name

Master of Science in Economics

Subject Categories

Economics

College

Ramon V. Del Rosario College of Business

Department/Unit

Economics

Thesis Adviser

Mariel Monica R. Sauler

Defense Panel Chair

Lawrence B. Dacuycuy

Defense Panel Member

Dickson A. Lim
Winfred M. Villamil

Abstract/Summary

With the increasing concerns on water stress amid rising water demands influenced by various socio-economic factors, it is vital to address limitations in access to water supply and sanitation. Since the 1990s, Public-Private Partnerships (PPPs) became a popular contractual agreement in providing water supply and sanitation services, especially in developing countries given its realities of poor water supply and budget constraints. However, despite the advantages of the PPP framework, critical challenges remain. One distinct challenge in executing a PPP project is the presence of information asymmetry. Withstanding the fact that the two entities may have varying motives, wherein the government’s objective is to maximize project benefits and the concessionaire’s objective is to maximize profits, the information gap widens. The existence of hidden action and hidden information hinders the project from realizing its optimal results. Consequently, to address information asymmetry, having a well-structured contract plays a key role in ensuring that provision of water services under PPP is welfare-improving. By the principal-agent framework, using transfer as an instrument to elicit truthful information from the concessionaire minimizes the information gap. By examining two transfer schemes, namely, fixed payment transfer and cost-sharing transfer, we characterize optimal levels of effort that would maximize social welfare under each scheme. Concessionaires prefer the cost-sharing transfer scheme as it allows them to exert less effort while receiving a higher level of transfer. Meanwhile, the general public prefers the fixed payment scheme as it has no welfare loss arising from cost-sharing of disutility factors.

Abstract Format

html

Language

English

Format

Electronic

Accession Number

CDTG007919

Keywords

Information asymmetry; Public-private sector cooperation; Human services

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Embargo Period

10-11-2022

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