ABSTRACT
This chapter analyses strategies, techniques and structures governments use to share and to manage or mitigate risk, and the relevant financial accounting. Drawing on predominantly Anglo-American literature and examples, it finds that, despite governments divesting services delivery through outsourcing, they are not entirely successful in sharing or reducing risk, due to multiple agents, incomplete contracts and complex motivational issues. The chapter focuses broadly on outsourcing risk relating to services and infrastructure, rather than other risks such as natural disasters. It considers the risks of specific types of outsourcing in two subsections: 'pay-for-services' and 'pay-for-success'. Pay-for-success includes Public Private Partnerships and Social Impact Bonds. The chapter focuses on the risks, risk-sharing, risk management, and the relevant financial accounting. It analyses how governments share and manage risk when they outsource, suggesting it is less successful than the rhetoric suggests. Efficiency and effectiveness are limited by risk averse public sector decision-making. Key risks include service and financial which engender political risk.
