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Empirical Analysis of VFM and Contract Structures in PFI Projects:an Analysis of PFI Projects in Japan

Author

Listed:
  • Masato YODO
  • Hirokazu MIZOBATA
  • Yusuke HAYASHIDA

Abstract

The purpose of this study is to investigate whether the Value for Money (VFM) of PFI projects depends on the fields and the contractual structures of the projects from the perspective of the incomplete contract theory. Recent research on incomplete contracts indicates that project fields and property rights of the facilities influence contractor incentives. Using data from 312 projects implemented in Japan by the end of March 2014, we show that the private contractors of these projects could attain higher VFM in water filtration and sewage business by adopting a BOT (Build-Operate-Transfer) contract. In contrast, in public facility construction and management projects, the contractors could achieve better results in VFM under a BTO (Build-Transfer-Operate) contract. In addition, we simulate the total VFM choosing desirable contractual structures for each project and find that the simulated VFM is approximately 40 billion yen higher than that in the actual contract. These results imply that the contractual structures play an important role in PFI projects. Specifically, to obtain higher benefits for the PFI, the type of contractual structures (BOT or BTO) requires careful selection depending on the field of each project. JEL Classification Number: D86, H54, H57 Key Words: PFI, VFM, Incomplete Contract Theory, BTO, BOT

Suggested Citation

  • Masato YODO & Hirokazu MIZOBATA & Yusuke HAYASHIDA, 2017. "Empirical Analysis of VFM and Contract Structures in PFI Projects:an Analysis of PFI Projects in Japan," Economic Analysis, Economic and Social Research Institute (ESRI), vol. 192, pages 47-66, March.
    • Handle: RePEc:esj:esriea:192c
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    File URL: http://www.esri.go.jp/jp/archive/bun/bun192/bun192c.pdf
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    Cited by:

    1. Yukari Fukuda & Jun-ichi Nakamura, 2021. "Economic Analysis of Public-Private Partnerships in Japan: Theoretical and Empirical Analyses Focusing on Adverse Selection and Synergy Effect," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(2), pages 1-27, November.

    More about this item

    Keywords

    pfi; vfm; incomplete contract theory; bto; bot;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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