Optimal Contract with Moral Hazard for Public Private Partnerships

Ishak Hajjej; Caroline Hillairet; Mohamed Mnif; Monique Pontier

Home/Archive/arXiv

arXiv · 1703.01754

Optimal Contract with Moral Hazard for Public Private Partnerships

Ishak Hajjej·Caroline Hillairet·Mohamed Mnif·Monique Pontier

View original source ↗Read source document ↗Export metadata ↓

Abstract

Public-Private Partnership (PPP) is a contract between a public entity and a consortium, in which the public outsources the construction and the maintenance of an equipment (hospital, university, prison...). One drawback of this contract is that the public may not be able to observe the effort of the consortium but only its impact on the social welfare of the project. We aim to characterize the optimal contract for a PPP in this setting of asymmetric information between the two parties. This leads to a stochastic control under partial information and it is also related to principal-agent problems with moral hazard. Considering a wider set of information for the public and using martingale arguments in the spirit of Sannikov, the optimization problem can be reduced to a standard stochastic control problem, that is solved numerically. We then prove that for the optimal contract, the effort of the consortium is explicitly characterized. In particular, it is shown that the optimal rent is not a linear function of the effort, contrary to some models of the economic literature on PPP contracts.

Explore related subjects

math.OC

Keep this discovery

BibTeX RIS

Ishak Hajjej, Caroline Hillairet, Mohamed Mnif, Monique Pontier. 2017-03-06. Optimal Contract with Moral Hazard for Public Private Partnerships. https://arxiv.org/abs/1703.01754

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Deterministic and Random Bipartite Matching on General Networks: Convex Flow Reformulation, Asymptotic Properties, and Fast Algorithms

Minimum-distance bipartite matching on general networks has numerous applications various fields. This paper first focuses on deterministic problems and presents an exact edgewise-separable convex-flow reformulation. By introducing a smooth monotone rearrangement approximation of the edge-wise imbalance profiles, the convex-flow reformulation's can be solved efficiently. If we further conduct a first-order resistance-based approximation of the convex program, a one-step Laplacian-based estimator can be analytically derived in closed forms. The paper also studies random problems where supply and demand points are randomly distributed. We show that the expected optimal matching distance scales with the square root of the number of points if the supply/demand point distributions are identical, or linearly otherwise. In the former case, the optimal flow is proven to be centered, symmetric, and sub-Gaussian. In the latter case, the limiting resistance network characterizes how supply-demand imbalance is redistributed and motivates a fast algorithm that approximate the optimal flow based on the limiting resistance. Numerical experiments show that the proposed estimators closely approximate the exact matching cost while substantially reducing computation time. The proven theoretical properties of the random matching solution are numerically verified by large-scale Monte Carlo simulations.

math.OC↗

arXiv2026

Conformal-DRO: Distributionally Robust Optimization with Conformalized Ambiguity Set

Data-driven distributionally robust optimization (DRO) typically treats the conditional outcome law as fixed and uses ambiguity sets to capture estimation error. This paper studies latent distributional heterogeneity, where each instance has an unobserved law but contributes only one observation, so uncertainty persists even if the mixture law is known. We propose Conformal-DRO, which uses nested conformal regions to construct an ambiguity set for the future latent law. Under exchangeability, the set covers this law with probability at least $1-\alpha$ in finite samples, without estimating underlying latent laws or their mixing mechanism. The conformal path induces a data-driven transport geometry, while $\alpha$ determines the radius. The worst-case problem reduces to a finite linear program over conformal shells and admits sparse adversarial solutions. The resulting robust value provides a finite-sample certificate for the selected decision's expected cost.

math.OC↗

arXiv2026

The best approximation tuple: an extension of the Cheney-Goldstein algorithm and results to the multiple sets case

In this paper we extend the algorithm and several results published in the celebrated 1959 paper of Cheney and Goldstein about the best approximation pair (BAP) problem in two separate directions. One is the consideration of more than two sets. The other is the ability to handle each set as an intersections of a finite family of sets. We call the resulting problem the "Best Approximation Tuple (BAT) problem". The fundamental observation that leads to this generalizations is to recognize and handle one set (the "pivot set") as different from the remaining sets (the "satellite sets") instead of seeking cycles as the minimizers of a target functional. This enable us to overcome a certain theoretical obstacle related to cycles and minimizers of general functionals. We prove the convergence of the algorithm to the unique solution of the problem in the Euclidean case with strictly convex and compact satellite sets. Because of the lack of Fej\'er monotonicity, our convergence analysis is not standard, and is based on almost unknown properties of orthogonal projections regarding equality and inequality in the definition of nonexpansiveness.

math.OC↗