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Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships


  • Oliver Hart



The question of what should determine the boundaries between public and private firms in an advanced capitalist economy is a highly topical one. In this paper I discuss some recent theoretical thinking on this issue. I divide the paper into two parts. First, I make some general remarks about the relationship between the theoretical literature of privatization and incomplete contracting theories of the firm. Second, I use some of the ideas from this literature to develop a very preliminary model of public-private partnerships.

Suggested Citation

  • 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.
  • Handle: RePEc:bri:cmpowp:02/061

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    References listed on IDEAS

    1. Stephen King & Rohan Pitchford, 2008. "Private or Public? Towards a Taxonomy of Optimal Ownership and Management Regimes," The Economic Record, The Economic Society of Australia, vol. 84(266), pages 366-377, September.
    2. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1343-1372.
    3. Bennett, John & Iossa, Elisabetta, 2006. "Building and managing facilities for public services," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2143-2160, November.
    4. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1127-1161.
    5. repec:hrv:faseco:30727607 is not listed on IDEAS
    6. Grout, Paul A, 1997. "The Economics of the Private Finance Initiative," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 53-66, Winter.
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    Cited by:

    1. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Fiscal Sustainability in Emerging Market Countries with an Application to Ecuador," IDB Publications (Working Papers) 1536, Inter-American Development Bank.
    2. Buso, Marco & Marty, Frederic & Tran, Phuong Tra, 2017. "Public-private partnerships from budget constraints: Looking for debt hiding?," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 56-84.
    3. repec:eee:iburev:v:27:y:2018:i:1:p:78-92 is not listed on IDEAS
    4. David Martimort & Flavio Menezes & Myrna Wooders & DANIEL DANAU & ANNALISA VINELLA, 2015. "Public-Private Contracting under Limited Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 78-110, February.
    5. Kosuke Oshima, 2016. "Public-Private Partnerships, Dividing Operational Stage, and Optimal Governance Structures," Public Organization Review, Springer, vol. 16(4), pages 443-459, December.
    6. John Bennett & Elisabetta Iossa, 2010. "Contracting out public service provision to not-for-profit firms," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 784-802, October.
    7. A. Marra & V. Carlei, 2014. "Institutional Environment And Partial Privatizations: Policy Implications For Local Governments," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(1), pages 31-52, March.
    8. Chatterjee, Susmita & Chattopadhyay, Srobonti & Chatterjee, Rittwik & Dutta, Debabrata, 2017. "Public Firm in Mixed Oligopolistic Structure: A Theoretical Exposition," MPRA Paper 80073, University Library of Munich, Germany, revised 15 May 2017.
    9. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Viabilidad fiscal en países de mercados emergentes con un enfoque en Ecuador," Research Department Publications 4372, Inter-American Development Bank, Research Department.
    10. Roger Vickerman & Emil Evenhuis, 2010. "Transport Pricing and Public-Private Partnerships," Studies in Economics 1004, School of Economics, University of Kent.
    11. Hulya Dagdeviren, 2011. "Political Economy Of Contractual Disputes In Private Water And Sanitation:Lessons From Argentina," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 82(1), pages 25-44, March.
    12. repec:ces:ifodic:v:12:y:2014:i:3:p:19126463 is not listed on IDEAS
    13. repec:eee:juipol:v:48:y:2017:i:c:p:201-209 is not listed on IDEAS
    14. Iliopoulos Constantine N. & Valentinov Vladislav & Kvartiuk Vasyl & Bartkowski Bartosz, 2013. "Government–Third Sector Relations in European Rural Development: A Critical Perspective," Nonprofit Policy Forum, De Gruyter, vol. 4(1), pages 65-80, May.
    15. Alessandro Marra, 2006. "Mixed Public-Private Enterprises in Europe: Economic Theory and an Empirical Analysis of Italian Water Utilities," Bruges European Economic Research Papers 4, European Economic Studies Department, College of Europe.
    16. repec:bla:jomstd:v:54:y:2017:i:6:p:763-792 is not listed on IDEAS
    17. repec:ces:ifodic:v:12:y:2014:i:3:p:19126469 is not listed on IDEAS
    18. Paul A. Grout, 2003. "Public and Private Sector Discount Rates in Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages 62-68, March.
    19. David Martimort & Flavio Menezes & Myrna Wooders & VANESSA VALERO, 2015. "Government Opportunism in Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 111-135, February.
    20. Marian MOSZORO, 2014. "Efficient Public-Private Capital Structures," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(1), pages 103-126, March.
    21. Grosjean Pauline, 2010. "Maintenance Costs, Outside Options and Optimal Ownership of a Public Good," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-18, November.
    22. Perotti,Enrico C., 2004. "State ownership - a residual role?," Policy Research Working Paper Series 3407, The World Bank.
    23. Crozet, Yves, 2014. "Extension of the high speed rail network in France: Facing the curse that affects PPPs in the rail sector," Research in Transportation Economics, Elsevier, vol. 48(C), pages 401-409.
    24. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.
    25. Rodrigo Nobre Fernandez & André Carraro & Ronald Otto Hillbrecht, 2016. "Efficiency, cost and benefits in contracts of public-private partnerships [Efficiency, cost and benefits in contracts of public-private partnerships]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 26(2), pages 369-392, May-Augus.

    More about this item


    organizational behaviour; scope of government; publicly provided goods;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H1 - Public Economics - - Structure and Scope of Government
    • H4 - Public Economics - - Publicly Provided Goods

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