Funding and financing infrastructure: The joint-use of public and private finance

Attracting private financing is high on the agenda of policy makers concerned with closing infrastructure gap in developing countries. To date, however, finance represents a minor share overall and poorest countries struggle to attract any investors. This paper develops model that rationalizes these facts. We characterize structure financial regulatory contracts derive conditions under which public coexist. requires combination regulated prices subsidies sufficiently attractive for outside financiers, pointing at fundamental trade-off between viability social inclusion. While improvements efficiency bankruptcy procedures facilitate access finance, institutional changes lowering cost funds make more attractive.