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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:

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    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. Schmitz, Patrick W., 2023. "The proper scope of government reconsidered: Asymmetric information and incentive contracts," European Economic Review, Elsevier, vol. 157(C).
    8. Kräkel, Matthias, 2021. "On the delegation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 965-981.
    9. Marco Buso & Luciano Greco, 2023. "The optimality of public–private partnerships under financial and fiscal constraints," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(4), pages 856-881, October.
    10. Wolfstetter, Elmar G., 2022. "Universal high-speed broadband provision: A simple auction approach," Information Economics and Policy, Elsevier, vol. 60(C).
    11. Alena Podaneva & Pierre Picard, 2023. "Facility Management Services in UK Hospitals: in-house or outsourcing," DEM Discussion Paper Series 23-15, Department of Economics at the University of Luxembourg.

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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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