We examine the optimal financing of infrastructure when governments have limited financial commitment and can … expropriate rents from private sector firms that manage infrastructure. While private firms need incentives to implement projects … investors to fund infrastructure projects. Optimal financing involves government guarantees to investors against project failure …

The property-rights approach to the theory of the firm is extended by introducing distorted signals of the parties ….investments. Investment incentives are then given in two ways, by allocating ownership rights and by tying pay to the signal realization …. Optimal incentive strength, that is, the weight that a signal is optimally given in a wage contract, depends on two …