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'Build It or Not': Normative and Positive Theories of Public-Private Partnerships

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  • Martimort, David
  • Pouyet, Jérôme

Abstract

This paper analyzes whether the two tasks of building infrastructures which are socially useful and managing those assets should be bundled or not. When performances contracts can be written, both tasks should be performed altogether by the same firm when a better design of the infrastructure helps also to save on operating costs (positive externality). Otherwise (negative externality), tasks should be kept split apart and undertaken by different units. In incomplete contracting environments where the quality of the infrastructure may be hard to describe in advance, we isolate conditions under which either the traditional form of public provision of services or the more fashionable public-private partnership optimally emerges. The latter dominates when there is a positive externality but the private benefits from owning assets are small enough. Finally, we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision-makers.

Suggested Citation

  • Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5610
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lewis Evans & Graeme Guthrie & Neil Quigley, 2012. "Contemporary Microeconomic Foundations for the Structure and Management of the Public Sector," Treasury Working Paper Series 12/01, New Zealand Treasury.
    2. Marco Francesconi & Abhinay Muthoo, 2011. "Control Rights In Complex Partnerships," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 551-589, June.
    3. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    4. Fagart, Marie-Cécile & Fluet, Claude, 2013. "The first-order approach when the cost of effort is money," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 7-16.
    5. Maskin, Eric & Tirole, Jean, 2008. "Public-private partnerships and government spending limits," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 412-420, March.
    6. Morasch, Karl & Tóth, Rita Orsolya, 2008. "Assigning tasks in public infrastructure projects: Specialized private agents or public private partnerships?," Working Papers in Economics 2008,2, Bundeswehr University Munich, Economic Research Group.
    7. Galilea, Patricia & Medda, Francesca, 2010. "Does the political and economic context influence the success of a transport project? An analysis of transport public-private partnerships," Research in Transportation Economics, Elsevier, vol. 30(1), pages 102-109.
    8. Chen, Bin R. & Chiu, Y. Stephen, 2010. "Public-private partnerships: Task interdependence and contractibility," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 591-603, November.
    9. Elisabetta Iossa & David Martimort, 2011. "The Theory of Incentives Applied to the Transport Sector," Chapters,in: A Handbook of Transport Economics, chapter 29 Edward Elgar Publishing.
    10. Francesconi, Marco & Muthoo, Abhinay, 2006. "Control Rights in Public-Private Partnerships," CEPR Discussion Papers 5733, C.E.P.R. Discussion Papers.
    11. Roy, Jaideep & Chowdhury, Prabal Roy, 2009. "Public-private partnerships in micro-finance: Should NGO involvement be restricted?," Journal of Development Economics, Elsevier, vol. 90(2), pages 200-208, November.
    12. David Martimort & Stéphane Straub, 2011. "How to Design Public-Private Partnerships in a Warming World? - When Infrastructure Becomes a Really “Hot” Topic," Working Papers 2011/25, Maastricht School of Management.
    13. Roger Vickerman & Emil Evenhuis, 2010. "Transport Pricing and Public-Private Partnerships," Studies in Economics 1004, School of Economics, University of Kent.
    14. Barreto Nieto, Carlos Alberto, 2010. "Modelo de Unión Público-Privado: una aproximación desde la Teoría de Contratos
      [Public Private-Partnership: an approach from contract theory]
      ," MPRA Paper 32038, University Library of Munich, Germany.
    15. Qiu, Larry D. & Wang, Susheng, 2011. "BOT projects: Incentives and efficiency," Journal of Development Economics, Elsevier, vol. 94(1), pages 127-138, January.
    16. Gregory Lewis & Patrick Bajari, 2014. "Moral Hazard, Incentive Contracts, and Risk: Evidence from Procurement," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1201-1228.
    17. Antonio Sánchez Soliño, 2012. "Optimización de la transferencia de riesgos en los Contratos de Infraestructuras y Servicios Públicos," Hacienda Pública Española, IEF, vol. 201(2), pages 67-91, June.

    More about this item

    Keywords

    agency costs; bundling/unbundling; capture; public-private partnership;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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