Assigning Tasks in Public Infrastructure Projects: Specialized Private Agents or Public Private Partnerships?

26 Pages Posted: 23 Jan 2009

See all articles by Karl Morasch

Karl Morasch

affiliation not provided to SSRN

Rita Orsolya Toth

Institute of Economics

Date Written: December 2008

Abstract

How should the different tasks in an infrastructure project be allocated to private and public agents, respectively? Traditionally, building the physical asset is assigned to private partners whereas financing and operation are carried out by the public sector. But even if building, operation, and possibly financing are delegated to the private sector, the question remains whether all these tasks should be accomplished by a single private agent in the form of a Public Private Partnership (PPP) or assigned to independent firms. To analyze this problem we apply an incomplete contracts approach and consider both informational asymmetries and investment incentives. The advantage of bundling tasks within a PPP is shown to depend crucially on how uncontractible investments in the building stage influence operating costs and service quality. The theoretically derived criteria are then applied to a specific PPP-project: The federal motorway A8 between Augsburg and Munich. Here we particularly discuss whether the chosen way of sharing financing tasks and demand risk within this PPP is likely to be appropriate.

Keywords: Public Private Partnership, Incomplete Contracts, Asymmetric Information

JEL Classification: H4, H54, H57, L33

Suggested Citation

Morasch, Karl and Toth, Rita Orsolya, Assigning Tasks in Public Infrastructure Projects: Specialized Private Agents or Public Private Partnerships? (December 2008). Available at SSRN: https://ssrn.com/abstract=1330894 or http://dx.doi.org/10.2139/ssrn.1330894

Karl Morasch (Contact Author)

affiliation not provided to SSRN ( email )

Rita Orsolya Toth

Institute of Economics ( email )

Werner-Heisenberg-Weg 39
Neubiberg
Munich, 85579
Germany

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