Reducing the debt : is it optimal to outsource an investment?

TL;DR

This paper analyzes optimal outsourcing strategies for large investments by comparing different contractual arrangements and equilibria, considering both complete and incomplete information scenarios.

Contribution

It introduces a formal analysis of outsourcing debt and investment, establishing the existence of Stackelberg and Nash equilibria in these contexts.

Findings

Existence of Stackelberg and Nash equilibria in outsourcing contracts

Comparison of benefits between different contractual arrangements

Impact of incomplete information on outsourcing decisions

Abstract

We deal with the problem of outsourcing the debt for a big investment, according two situations: either the firm outsources both the investment (and the associated debt) and the exploitation to a private consortium, or the firm supports the debt and the investment but outsources the exploitation. We prove the existence of Stackelberg and Nash equilibria between the firm and the private consortium, in both situations. We compare the benefits of these contracts. We conclude with a study of what happens in case of incomplete information, in the sense that the risk aversion coefficient of each partner may be unknown by the other partner.