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Public-private partnerships: Task interdependence and contractibility

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Author Info

  • Chen, Bin R.
  • Chiu, Y. Stephen

Abstract

We examine the proper scope of public-private partnerships in the context of a project consisting of two tasks, building and operation of a facility. We investigate the optimal arrangement regarding bundling versus unbundling and private ownership versus public ownership. Like Bennett and Iossa (2006), we assume that the innovative activity in the building stage has impacts on, among other things, the subsequent operational cost. We relax the nature of task interdependence and study different contractual frameworks. The general insight is that given limitations in contractibility, contrary to common sense, complementarity between tasks favors unbundling over bundling.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 6 (November)
Pages: 591-603

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Handle: RePEc:eee:indorg:v:28:y:2010:i:6:p:591-603

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Complementarity Substitutability Incomplete contracts Public-private partnership;

References

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  1. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  2. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
  4. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 15 Feb 2013.
  5. Che, Yeon-Koo, 2000. "Can a Contract Solve Hold-Up When Investments Have Externalities? A Comment on De Fraja (1999)," Games and Economic Behavior, Elsevier, vol. 33(2), pages 195-205, November.
  6. Neher, Darwin V, 1999. "Staged Financing: An Agency Perspective," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 255-74, April.
  7. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  9. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1343-1372, November.
  10. Christoph Lülfesmann, 2004. "Research Collaborations with Sequential Investments," Economica, London School of Economics and Political Science, vol. 71(281), pages 241-259, 05.
  11. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
  12. Bennett, John & Elisabetta Iossa, 2002. "Building and Managing Facilities for Public Services," Royal Economic Society Annual Conference 2002 22, Royal Economic Society.
  13. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  14. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  15. Chen, Bin R. & Chiu, Y. Stephen, 2010. "Public-private partnerships: Task interdependence and contractibility," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 591-603, November.
  16. Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
  17. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
  18. Vladimir Smirnov & Andrew Wait, 2004. "Hold-up and Sequential Specific Investments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 386-400, Summer.
  19. De Fraja, Gianni, 1999. "After You Sir. Hold-Up, Direct Externalities, and Sequential Investment," Games and Economic Behavior, Elsevier, vol. 26(1), pages 22-39, January.
  20. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 321-45, April.
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Citations

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Cited by:
  1. Halonen-Akatwijuka, Maija, 2012. "Nature of human capital, technology and ownership of public goods," Journal of Public Economics, Elsevier, vol. 96(11), pages 939-945.
  2. Chen, Bin R. & Chiu, Y. Stephen, 2010. "Public-private partnerships: Task interdependence and contractibility," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 591-603, November.
  3. Schmitz, Patrick W., 2013. "Public procurement in times of crisis: The bundling decision reconsidered," Economics Letters, Elsevier, vol. 121(3), pages 533-536.
  4. Eva I. Hoppe & David J. Kusterer & Patrick W. Schmitz, 2011. "Public-private partnerships versus traditional procurement: An experimental investigation," Cologne Graduate School Working Paper Series 02-02, Cologne Graduate School in Management, Economics and Social Sciences.
  5. Schmitz, Patrick W., 2012. "Job design with conflicting tasks reconsidered," MPRA Paper 36914, University Library of Munich, Germany.
  6. Schmitz, Patrick W, 2010. "Should a principal hire one agent or two agents to perform two sequential tasks?," CEPR Discussion Papers 7976, C.E.P.R. Discussion Papers.
  7. Hoppe, Eva I & Schmitz, Patrick W, 2010. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," CEPR Discussion Papers 7681, C.E.P.R. Discussion Papers.
  8. Antonio García-Lorenzo, 2014. "Cooperación público-privada en la prestación de servicios públicos: el conflicto entre la flexibilidad y la incertidumbre," SERMED 2014 Conference Papers p08, Instituto Universitario de Análisis Económico y Social.

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