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How (Not) to Foster Innovations in Public Infrastructure Projects

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  • Hoppe, Eva I.
  • Schmitz, Patrick W.

Abstract

The government wants an infrastructure-based public service to be provided. First, the infrastructure has to be built; subsequently, it has to be operated. Should the government bundle the building and operating tasks in a public-private partnership? Or should it choose traditional procurement, i.e. delegate the tasks to different firms? Each task entails unobservable investments to come up with innovations. It turns out that depending on the nature of the innovations, bundling may either stimulate or discourage investments. Moreover, we find that if renegotiation cannot be prevented, public-private partnerships may lead the government to deliberately opt for technologically inferior projects.

Suggested Citation

  • Hoppe, Eva I. & Schmitz, Patrick W., 2019. "How (Not) to Foster Innovations in Public Infrastructure Projects," MPRA Paper 95615, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:95615
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    Cited by:

    1. Patrick W Schmitz, 2022. "How (Not) to Purchase Novel Goods and Services: Specific Performance Versus at-will Contracts [‘Renegotiation design with unverifiable information’]," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2563-2577.
    2. Elmar G. Wolfstetter, 2021. "Universal High-Speed Broadband Provision: An Alternative Policy Approach," CESifo Working Paper Series 9014, CESifo.
    3. Müller, Daniel & Schmitz, Patrick W., 2021. "The right to quit work: An efficiency rationale for restricting the freedom of contract," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 653-669.
    4. Mahavadi Dhanshyam & Samir K. Srivastava, 2021. "Governance structures for public infrastructure projects: Public–private management regimes, contractual forms and innovation," Construction Management and Economics, Taylor & Francis Journals, vol. 39(8), pages 652-668, August.
    5. Schmitz, Patrick W., 2023. "Incentivizing research with (un)conditional teaching duties: Punishment or rent extraction?," Economics Letters, Elsevier, vol. 224(C).
    6. Jiancai Pi, 2021. "An investigation of seeming favoritism in public procurement," Manchester School, University of Manchester, vol. 89(1), pages 128-137, January.
    7. Kräkel, Matthias, 2021. "On the delegation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 965-981.
    8. Wolfstetter, Elmar G., 2022. "Universal high-speed broadband provision: A simple auction approach," Information Economics and Policy, Elsevier, vol. 60(C).
    9. Schmitz, Patrick W., 2023. "Incentivizing research with (un)conditional teaching duties: Punishment or rent extraction?," Economics Letters, Elsevier, vol. 224(C).
    10. Marco Buso & Luciano Greco, 2021. "The Optimality of Public-Private Partnerships under Financial and Fiscal Constraints," "Marco Fanno" Working Papers 0276, Dipartimento di Scienze Economiche "Marco Fanno".

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    More about this item

    Keywords

    Contract theory; procurement; public-private partnerships; moral hazard; renegotiation;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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