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.