To build or not to build: Normative and positive theories of public–private partnerships

Abstract

This paper analyzes whether the two tasks of building infrastructures which are socially useful in providing public services and managing these assets should be bundled or not. When performance contracts can be written, both tasks should be performed altogether by the same firm if a better design of the infrastructure helps also to save on operating costs. Otherwise, tasks should be kept apart and undertaken by different units. In incomplete contracting environments we isolate conditions under which either the traditional form of public provision of services or the more fashionable public-private partnership emerges optimally. The latter dominates when there is a positive externality and the private benefits from owning assets are small enough. Finally, we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision-makers. Much of the gains from bundling may be lost in this case.

Assigning Tasks in Public Infrastructure Projects: Specialized Private Agents or Public Private Partnerships?

“…It is shown that the bundling of tasks within a PPP is optimal in the case of a positive externality, whereas with a negative externality one should choose the traditional way of service provision. The same result is obtained in Martimort and Puoyet (2008) in a agency setting with complete contracts. Beyond that the paper by Martimort and Puoyet also considers different ownership structures and addresses some aspects of the political economy of PPPs.…”

Cost versus control: Understanding ownership through outsourcing in hospitals

“…There is a burgeoning literature on the "boundary of the organization" and how public entities provide services (Hart, Shleifer and Vishny 1997, Lopez de Silanes, Shleifer and Vishny 1997, Nelson 1997, Brown and Potoski 2003, Martimort and Pouyet 2008, David and Chiang 2009, Levin and Tadelis 2010, Iossa and Martimort 2012, but nearly every empirical investigation has focused on one ownership type. These studies cannot address what is essentially "public" or "nonprofit" about choices because they lack a control group of profit maximizers.…”

Public-Private Partnerships: The Underlining Principles of Infrastructure Investment, Finance and Development Projects

“…According to Grout (1997);Hart (2003); Bennett and Iossa (2006);Bentz et al (2005); Martimort and Pouyet (2008); Iossa and Martimort (2008) all their studies point out and consider internal life sequence cost consideration, ownership of the infrastructure and compensation costs as possible favourable arguments of PPPs.…”