IDEAS home Printed from https://ideas.repec.org/p/edj/ceauch/257.html
   My bibliography  Save this paper

Public-Private Partnerships: when and how

Author

Listed:
  • Eduardo Engel
  • Ronald Fischer
  • Alexander Galetovic

Abstract

When are public-private partnerships (PPPs) better than conventional provision and regulated privatization? And should PPP contracts be structured and governed when this is the case?. We show that the defining features of a PPP are (i) bundling of construction and operation, (ii) private but temporary ownership of assets and (iii) intertemporal risk sharingwith the public sector. Thus some characteristics of PPPs are akin to privatization while others are similar to conventional provision. Since incentives for efficient building and management are related to bundling, PPPs are closer to privatization in this regard. As the discounted government budget under a PPP is similar to that under conventional provision, PPPs are closer to conventional provision when it comes to budgetary accounting. We also show that avoiding distortionary taxation and relieving strained government budgets are weak arguments for PPPs. We examine the institutional requirements for a successful PPP program and emphasize the need for an independent supervisor of PPPs (and in general of all public works) and a Committee of Experts to award when conflicts or the need for renegotiation arises. Lack of rule of law alters the choice between conventional provision and PPPs in favor of the former, as there is less risk of regulatory takings in a short termconstruction contract than in a long lived PPP. In the case where quality service is contractible, the the PPP contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap that differ from those observed in practice. This contract can be implemented via a competitive auction with realistic informational requirements.

Suggested Citation

  • Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2009. "Public-Private Partnerships: when and how," Documentos de Trabajo 257, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:257
    as

    Download full text from publisher

    File URL: http://www.cea-uchile.cl/wp-content/uploads/doctrab/ASOCFILE120081224004455.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2013. "The Basic Public Finance Of Public–Private Partnerships," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 83-111, February.
    2. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
    3. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2003. "Renegotiation of Concession Contracts in Latin America," Edinburgh School of Economics Discussion Paper Series 103, Edinburgh School of Economics, University of Edinburgh.
    4. Lisa J. Cameron, 2000. "Limiting Buyer Discretion: Effects on Performance and Price in Long-Term Contracts," American Economic Review, American Economic Association, vol. 90(1), pages 265-281, March.
    5. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages 179-204, January.
    6. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2003), pages 129-164, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 1-18, September.
    2. Gayoung Choi & Taeyoung Jin & Yoonjeong Jeong & Sue Kyoung Lee, 2020. "Evolution of Partnerships for Sustainable Development: The Case of P4G," Sustainability, MDPI, vol. 12(16), pages 1-14, August.
    3. Daniel Albalate & Germà Bel & R. Richard Geddes, 2012. "“The determinants of contractual choice for private involvement in infrastructure projects in the United States”," IREA Working Papers 201220, University of Barcelona, Research Institute of Applied Economics, revised Dec 2012.
    4. 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.
    5. Andres,Luis Alberto & Biller,S. A. Dan & Herrera Dappe,Matias, 2014. "Infrastructure gap in South Asia : infrastructure needs, prioritization, and financing," Policy Research Working Paper Series 7032, The World Bank.
    6. Lavinia- Monica Dan, 2022. "Public-Private Partnerships-Analysis Of Current Challenges And Opportunitties At Eu-27 And National Level From An Entrepreneurial Perspective," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 68-76, August.
    7. Beria, Paolo & Ramella, Francesco & Laurino, Antonio, 2015. "Motorways economic regulation: A worldwide survey," Transport Policy, Elsevier, vol. 41(C), pages 23-32.
    8. -, 2013. "Perspectivas económicas de América Latina 2014: logística y competitividad para el desarrollo," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1504 edited by Ocde, March.
    9. Lavinia- Monica Dan, 2022. "Public-Private Partnerships-Analysis Of Current Challenges And Opportunitties At Eu-27 And National Level From An Entrepreneurial Perspective," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 92-100, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Winston, Clifford & Yan, Jia, 2011. "Can privatization of U.S. highways improve motorists' welfare?," Journal of Public Economics, Elsevier, vol. 95(7), pages 993-1005.
    2. J. Luis Guasch & Jean-Jacques Laffont & Stéphane Straub, 2007. "Concessions of infrastructure in Latin America: Government-led renegotiation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1267-1294.
    3. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Privatizing Highways in the United States," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 27-53, September.
    4. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.
    5. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2004. "Soft Budgets And Highway Franchising," Documentos de Trabajo 176, Centro de Economía Aplicada, Universidad de Chile.
    6. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2005. "Infrastructure concessions in Latin America : government-led renegotiations," Policy Research Working Paper Series 3749, The World Bank.
    7. Clifford Winston & Jia Yan, 2008. "US Highway Privatization and Heterogeneous Preferences," Working Papers 2008-20, School of Economic Sciences, Washington State University.
    8. 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.
    9. David Martimort & Flavio Menezes & Myrna Wooders & FLÁVIO MENEZES & MATTHEW RYAN, 2015. "Default and Renegotiation in Public-Private Partnership Auctions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 49-77, February.
    10. Baños-Pino, José F. & Boto-García, David & Zapico, Emma, 2021. "Persistence and dynamics in the efficiency of toll motorways: The Spanish case," Efficiency Series Papers 2021/03, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    11. Fay, Marianne & Martimort, David & Straub, Stéphane, 2021. "Funding and financing infrastructure: The joint-use of public and private finance," Journal of Development Economics, Elsevier, vol. 150(C).
    12. Engel, Eduardo M.R.A. & Fischer, Ronald & Galetovic, Alexander, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," Center Discussion Papers 28382, Yale University, Economic Growth Center.
    13. Moszoro Marian W., 2018. "Public–Private Monopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(2), pages 1-15, April.
    14. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2009. "Soft budgets and Renegotiations in Public-Private Partnerships," Documentos de Trabajo 265, Centro de Economía Aplicada, Universidad de Chile.
    15. Nicolas Campos & Eduardo Engel & Ronald D. Fischer & Alexander Galetovic, 2019. "Renegotiations and corruption in infrastructure: The Odebrecht case," "Marco Fanno" Working Papers 0230, Dipartimento di Scienze Economiche "Marco Fanno".
    16. repec:ces:ifodic:v:12:y:2014:i:3:p:19131884 is not listed on IDEAS
    17. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2018. "The joy of flying: Efficient airport PPP contracts," Transportation Research Part B: Methodological, Elsevier, vol. 114(C), pages 131-146.
    18. Matthew Ryan & Fl�vio Menezes, 2015. "Public-private partnerships for transport infrastructure: Some efficiency risks," New Zealand Economic Papers, Taylor & Francis Journals, vol. 49(3), pages 276-295, August.
    19. Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Levine's Bibliography 122247000000001833, UCLA Department of Economics.
    20. Alberto Chong & Florencio de, 2003. "The Truth about Privatization in Latin America," Yale School of Management Working Papers ysm436, Yale School of Management.
    21. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," Edinburgh School of Economics Discussion Paper Series 147, Edinburgh School of Economics, University of Edinburgh.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:257. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/ceuclcl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.