We study the effects of granting an exit option allowing the private party to terminate a Public-Private Partnerships contract early if it turns out to be lossmaking. In a continuous-time setting with hidden information about the private returns on investment, we show that an exit option, acting as a risksharing device, can soften agency problems and, in so doing, spur investment and increase the government's expected payoff, even while taking into account the costs that the public sector will have to meet in the future to resume the project.Partnerships between private and government entities for the provision of public services are not exclusively a contemporary phenomenon. For instance, examples can be found during the Roman Empire, where postal stations were constructed and managed by private subjects, under contracts, sometimes including maintenance of associated road segments, awarded by municipalities through competitive bidding (PPIAF, 2019). Recent decades, however, have witnessed an increased outsourcing of traditionally public sector activities for several reasons, including the presumed inherent efficiency superiority of private management, the need of leveraging scarce public funds and, sometimes, the attempt "to shift public investment off-budget (and out of public eye)" (Sadka, 2006, p. 20).Nowadays, the term public-private partnership (PPP) covers a wide range of contractual arrangements, that however share some common features that differentiate them from other forms of cooperation between the public and the private sector. For instance, compared with conventional procurement methods, a distinctive feature of PPPs is that the private party must take a substantial proportion of risk, insofar as they generally involve responsibility over several project functions (e.g., construction, maintenance, and operation of public infrastructures) and remuneration is closely tied to performance (World Bank, 2017).Tasks bundling and the direct link between rewards and performance can prove beneficial in terms of service quality for end-users and value for money for the taxpayer (Hart, 2003). However, the long duration of PPPs, needed to