Liquidity Access and Crises: a Search of an Effective Model of Private Public Partnership in Real Sector

The study is dedicated to the search of an effective model of interaction between government and business in the financial instability conditions. One of the key motives for the government to partner with private sector is the need for effective risk management. While the private-public partnership is a rather well-known and widely used form of institution, its research is hindered by the constraints in the approach to the establishment of a relationship between the partners: the problem of developing tools and mechanisms for PPP project management in financial instability conditions has not yet been sufficiently thoroughly researched. The study focuses on modeling an optimal contract for implementation of a private-public partnership project in financial instability conditions, allowing for establishment of an algorithm of actions to be applied in case of liquidity shock in order to avoid irretrievable costs. The study results demonstrate the mechanisms of determining the optimal type of contract as a consequence of each of the following liquidity shocks: capital shock, public finance shock, demand shock. The proposed model was tested using an example of an infrastructural PPP project. The test resulted in an empirical confirmation of the proposed mechanisms’ effectiveness for overcoming the unfavorable consequences of financial instability. The study is a preliminary attempt to systematize the approach to project implementation in limited funding conditions. Due to the novelty of the research area, complexity of its subject and an extensive number of existing constraints, a good outcome would be to compile the existing base models detailing the financial instability conditions which constitute the current state of the global and national economy. The study results provide new conclusions on the subject of private-public partnership effectiveness in view of development of the strategic area of economic interaction between the government and the business.