An interesting academic article:
Iossa, E.; Martimort, D. (2013), “The simple microeconomics
of public-private partnerships”, CEIS Tor Vergata Research Paper Series,
6 (12), 139.
This article presents a basic theoretical framework that is
extended to analyze a variety of important topics in PPPs. The basic
theory and its extensions are used to examine stylized facts and
empirical evidence on the topic.
A PPP is defined in the context
of this article as a long term project (15 to 30 years) for which the
public sector contracts with a private consortium, bundling construction
of the infrastructure and provision of the service in the same
The basic model merges the literature on PPPs based in
incentive theory with more than one dimensions of effort, and the
literature based on property rights. In the basic model a key issue is
the complementarity or substitutability of tasks. For example, if an
investment effort in the quality of the infrastructure contributes to
reducing the costs of operating the service, then providing incentives
for this effort in a bundling contract contributes to less costly
operation. However, if the externality of quality investment on
operation costs is negative, then bundling is counterproductive.
insights from the basic model can be used to analyze what proportion of
the revenue risk should be transferred to contractors. If the
contractor cannot influence demand (like with prisons), then the
contractor should not bear demand risk at all. In cases where the
contractor can influence demand risk, this should be borne accordingly
by this contractor. This happens with leisure centres, with
transportation projects being in-between.
Each section presents
either the basic model or an extension of it, and finishes with how the
existing theoretical literature has covered this particular issue and
what is the empirical evidence about it. In this way, the paper is a
good survey of the empirical literature as well, although it reveals an
excessive variety of empirical approaches and a lack of strong
conclusions as to the impact of PPPs on costs and quality.
extensions cover quality issues, uncertainty and renegotiations, cost
overruns and political problems concerning lack of commitment. In all
these cases, it is shown that PPPs have the potential to increase
efficiency, but their success depends always on the details of
contractual conditions and execution.
This is the paper that
provides a more comprehensive review of the existing theoretical
literature on PPPs and at the same time of the existing empirical
evidence. (The full note can be read here, in the second PPPs newsletter of the Public-Private Sector Research Center at IESE).
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