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Traditional Procurement versus Public–Private Partnership: A Comparison of Procurement Modalities Focusing on Bundling Contract Effects

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  • Lee, Hojun

    (World Bank)

  • Kim, Kiwan

    (Korea Development Institute)

Abstract

This paper studies the optimal structure of procurement contracts between public and private sectors by mainly comparing two typical procurement types: traditional procurement and public–private partnership (PPP). We first set up a principal–agent model focusing on bundling effects of procurement based on Hart (2003), and Iossa and Martimort (2015) to see under which conditions PPP has advantages over traditional procurement and vice versa. Then, we consider if the Republic of Korea’s PPP structure in practice is well designed to maximize efficiency regarding the theoretical model. By reviewing the data on major investors and equity transactions of the Republic of Korea’s PPP projects, we show that the bundling effects of PPP contracts, which is one of the main sources of efficiency, is limited under the current economic and political environment and derive policy implications for developing countries implementing PPP projects in the region.

Suggested Citation

  • Lee, Hojun & Kim, Kiwan, 2018. "Traditional Procurement versus Public–Private Partnership: A Comparison of Procurement Modalities Focusing on Bundling Contract Effects," ADB Economics Working Paper Series 560, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0560
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    References listed on IDEAS

    as
    1. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages 69-76, March.
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    Cited by:

    1. Välilä, Timo, 2020. "An overview of economic theory and evidence of public-private partnerships in the procurement of (transport) infrastructure," Utilities Policy, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    bundling contract; infrastructure; public–private partnership; traditional procurement;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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