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Effects of contract governance on public private partnership (PPP) performance

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  • Chandan Kumar

    (Indira Gandhi Institute of Development Research)

Abstract

Using the basic instruments of governance as highlighted in the transaction cost economics literature, this paper empirically examines the impact of differences in contract attributes on project outcomes. The hypothesis is to test whether better incentive structure and stricter administrative controls lead to more efficient project outcomes. It compares two sets of contracts (called as toll and annuity) from Indian PPP road projects which are designed for the same task and implemented under the similar conditions, but have some differences in the contract governance attributes. It carries out this exercise using data from more than 150 projects. The empirical findings highlight how instruments of governance influence the degree of efficiency in achieving the desired results. For instance, the annuity model, that has tighter budget constraint (i.e. better incentive structure) than the toll model, performs better in terms of minimizing cost and time overruns. Moreover, the results demonstrate that changes in administrative controls also influence outcomes. Stricter the control, better is the efficiency in the desired outcomes. The empirical findings could be useful to the policymakers for designing better contracts for the road as well as other infrastructure related sectors.

Suggested Citation

  • Chandan Kumar, 2018. "Effects of contract governance on public private partnership (PPP) performance," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-014, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2018-014
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    References listed on IDEAS

    as
    1. Macher Jeffrey T & Richman Barak D, 2008. "Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences," Business and Politics, De Gruyter, vol. 10(1), pages 1-65, May.
    2. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(2), pages 335-361, October.
    3. Williamson, Oliver E, 1999. "Public and Private Bureaucracies: A Transaction Cost Economics Perspective," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 306-342, April.
    4. Stéphane SAUSSIER, 1999. "Transaction Cost Economics and Contract Duration : An Empirical Analysis of EDF Coal Contracts," Discussion Papers (REL - Recherches Economiques de Louvain) 1999011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Barron, John M & Umbeck, John R, 1984. "The Effects of Different Contractual Arrangements: The Case of Retail Gasoline Markets," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 313-328, October.
    6. Macher, Jeffrey T. & Richman, Barak D., 2008. "Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences," Business and Politics, Cambridge University Press, vol. 10(1), pages 1-63, April.
    7. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
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    More about this item

    Keywords

    Contracts; Transaction Cost Economics; Road sector; Public Private Partnership; India;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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