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The Economics of the Private Finance Initiative

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Author Info
Grout, Paul A
Abstract

This article outlines and assesses the private finance initiative in the UK. The initiative has been slow to develop despite pressure from governments (anxious to limit the PSBR) and several revamps to facilitate the PFI approach. Within a PFI project there are beneficial incentives to avoid cost over-runs but not to reduce costs where they affect long-run services. These incentives and the limits to their effectiveness are explored. Such contracts require the transfer of risk from the public does not value risk correctly and that the value for money test is biased against private-sector provision. Policy implications are discussed, including a revamp of the value for money test and the introduction of explicit assessment of the impact of potential renegotiation and other contractual difficulties. Copyright 1997 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 13 (1997)
Issue (Month): 4 (Winter)
Pages: 53-66
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Handle: RePEc:oup:oxford:v:13:y:1997:i:4:p:53-66

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  2. Diane Dawson, 2001. "The private finance initiative: a public finance illusion?," Health Economics, John Wiley & Sons, Ltd., vol. 10(6), pages 479-486. [Downloadable!]
  3. Roine Leiringer, 2006. "Technological innovation in PPPs: incentives, opportunities and actions," Construction Management & Economics, Taylor and Francis Journals, vol. 24(3), pages 301-308, March. [Downloadable!] (restricted)
  4. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 19 Dec 2008. [Downloadable!]
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  5. M.G. Pollitt, 2000. "The Declining Role of the State in Infrastructure Investments in the UK," Cambridge Working Papers in Economics 0001, Faculty of Economics, University of Cambridge. [Downloadable!]
  6. Eugenia Cacciatori, 2004. "Organisational Memory and Innovation Across Projects: Integrated Service Provision in Engineering Design Firms," SPRU Electronic Working Paper Series 117, University of Sussex, SPRU - Science and Technology Policy Research. [Downloadable!]
  7. Efraim Sadka, 2006. "Public-Private Partnerships--A Public Economics Perspective," IMF Working Papers 06/77, International Monetary Fund. [Downloadable!]
  8. Jean-Etienne de Bettignies & Thomas W. Ross, 2004. "The Economics of Public-Private Partnerships," Canadian Public Policy, University of Toronto Press, vol. 30(2), pages 135-154, June. [Downloadable!] (restricted)
  9. Frédéric Marty & Arnaud Voisin, 2007. "Les difficultés d’exécution des Partenariats Public-Privé: le retour d’expérience des contrats de Private Finance Initiative britanniques," Documents de Travail de l'OFCE 2007-26, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  10. Stephen C Littlechild, 2002. "Competitive Bidding for a Long-Term Electricity Distribution Contract," Review of Network Economics, Concept Economics, vol. 1(1), pages 1-38, March. [Downloadable!]
  11. Paolo Balduzzi, 2006. "Models of Partnerships," Working Papers 96, University of Milano-Bicocca, Department of Economics, revised May 2006. [Downloadable!]
  12. Oliver Hart, 2002. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," The Centre for Market and Public Organisation 02/061, Department of Economics, University of Bristol, UK. [Downloadable!]
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  13. Athias, Laure, 2007. "Political accountability, incentives, and Contractual design of public private partnerships," MPRA Paper 10538, University Library of Munich, Germany, revised 11 Mar 2009. [Downloadable!]
  14. Elisabetta Iossa & David Martimort, 2009. "The Theory of Incentives Applied to the Transport Sector," The Centre for Market and Public Organisation 09/210, Department of Economics, University of Bristol, UK. [Downloadable!]
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