Scoring-rule and the choice of a contractor by a financially constrained government

Governments and public authorities are increasingly relying on Public-Private Partnerships for the provision of public goods and services. It is often argued that the use of a public private partnership can relieve the government from a strained budget constraint and, in this paper, we analyze the choice of a contractual solution for designing, constructing and managing a project, with observable externalities, by a budget-constrained government. We show that the quality of the project and the designed contractor are affected by the extent of the budget constraint and we show that the use of a PPP may partially overcome the resulting inefficiencies.