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Imperfect Bundling In Public-Private Partnerships

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  • Luciano Greco

    ()
    (University of Padova)

Abstract

The economic literature on PPPs has generally overlooked agency problems within private consortia. We provide a first contribution in this direction, relying on a simple incomplete contracts framework where a Builder and an Operator set up a Special Purpose Vehicle (SPV) to carry out a contract with the government. Because of incomplete contracts, the bundling of tasks is imperfect, and the SPV ownership structure is the main tool to regulate the power of private incentives. The scope for welfare-improving PPPs reduces with respect to the case of perfect bundling, and the private negotiation always awards a suboptimal SPV-ownership share to the Builder. Thus, imposing ownership requirements in PPPs is a welfare-improving policy.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0147.

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Length: 27 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:pad:wpaper:0147

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Keywords: Incomplete contracts; Nash Bargaining; Ownership; Special-Purpose Vehicle.;

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References

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  1. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 393-411, March.
  2. Wagenvoort, Rien & de Nicola, Carlo & Kappeler, Andreas, 2010. "Infrastructure finance in Europe: Composition, evolution and crisis impact," EIB Papers 1/2010, European Investment Bank, Economics Department.
  3. John Bennett & Elisabetta Iossa, 2004. "Building and Managing Facilities for Public Services," Public Policy Discussion Papers 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  4. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, 09.
  5. de Bettignies, Jean-Etienne & Ross, Thomas W., 2009. "Public-private partnerships and the privatization of financing: An incomplete contracts approach," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 358-368, May.
  6. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
  7. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2010. "The economics of infrastructure finance: Public-Private Partnerships versus public provision," EIB Papers 2/2010, European Investment Bank, Economics Department.
  8. Dewatripont, Mathias & Legros, Patrick, 2005. "Public-private partnerships: contract design and risk transfer," EIB Papers 5/2005, European Investment Bank, Economics Department.
  9. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.
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Cited by:
  1. Marco Buso, 2014. "Public-Private Partnership: Information Externality in Sequential Investments," "Marco Fanno" Working Papers 0176, Dipartimento di Scienze Economiche "Marco Fanno".

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