Rational Inattention in Non-Profit Public-Private Partnerships: The Las Vegas Monorail Bankruptcy Case

Abstract

Public-Private Partnerships (PPPs) have become popular transit project delivery mechanisms, allowing US state and local governments to access resources from, and share risks with, the private sector. In order to attract private resources however, the public sector must address rational inattention—a potential bankruptcy determinant. Consequently, this paper explores the Las Vegas Monorail bankruptcy case. After reviewing the project’s documents, risk analyses, and news reports, the analysis suggests that the bankruptcy arose from stakeholder inattention since (i) the project’s non-profit corporation isolated project developers from consequences and (ii) investors sought seemingly liquid and safe assets (the project’s bonds) as the Dotcom bubble burst. Insufficient evidence was found to support a competing hypothesis regarding opportunistic behavior. The findings suggest that policymakers (1) conduct competitive procurements, (2) avoid non-profit corporations for future PPPs, (3) perform ex ante stress tests to evaluate debt sustainability, and (4) conduct analyses to evaluate the costs and benefits of PPP contract renegotiations.