Seeking to address inefficient and costly infrastructure delivery, governments over the past two decades have turned to public-private partnerships (PPPs) to build and operate infrastructure. The key characteristic of PPPs is the outsourcing and 'bundling' of project delivery components (for example, design, build, finance, operate), structured to incentivise the builder-operator to incorporate long-term operating cost considerations in the design and construction phases of a project and reduce coordination costs. This article reviews the benefits and drawbacks of PPPs and the experience to date, focusing in particular on developing economies. Relative to traditional procurement, PPPs are complex, and require governments to anticipate and plan for contingencies and conduct monitoring and enforcement of long-term contracts. We argue that institutional capacity is a key determinant of PPP success and in mitigating potentially welfare-reducing contract renegotiations evident in the Latin American experience.

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Constrained by severe, ongoing fiscal pressures and sensitive to concerns over bureaucratic inefficiency, policy-makers in a number of countries are re-evaluating both the goals and instruments of the modern state. In doing so, some have endorsed the need for government 'reinvention,' a term that is admittedly susceptible of a broad range of meanings, but which nonetheless contemplates a significant shift away from reliance on governmental provision of goods and services in favour of provision by the for-profit and third sectors.' Although not uncontroversial, the claim is that, in comparison with governmental supply systems, both forprofit and third sector modes of delivery offer a superior means for organizing productive activity because of the greater incentives that exist within these organizations for lower-cost, innovative production. Although the claim has been made in a number of different policy contexts, we focus on its salience in the context of government's role in supplying traditional physical infrastructure projects such as roads and highways, bridges, dams, water and sewage systems, and airports.

In the past decade, an institutional perspective on development has become increasingly prominent in development thinking. However, the reform experience thus far suggests that if institutions indeed matter for development, we still do not have a firm understanding of how to transforms dysfunctional institutions. Drawing on concrete examples of rule of law and property rights reforms, we argue that path dependence theory can shed some light on past failures and provide guidance for future reforms.

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