Procurement in Infrastructure: What Does Theory Tell Us ?

40 Pages Posted: 20 Apr 2016

See all articles by Antonio Estache

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Atsushi Iimi

International Monetary Fund (IMF); World Bank

Christian A. Ruzzier

University of San Andres (UMSA) - Department of Economics

Date Written: July 1, 2009

Abstract

Infrastructure has particular challenges in public procurement, because it is highly complex and customized and often requires economic, political and social considerations from a long time horizon. To deliver public infrastructure services to citizens or taxpayers, there are a series of decisions that governments have to make. The paper provides a minimum package of important economic theories that could guide governments to wise decision-making at each stage. Theory suggests that in general it would be a good option to contract out infrastructure to the private sector under high-powered incentive mechanisms, such as fixed-price contracts. However, this holds under certain conditions. Theory also shows that ownership should be aligned with the ultimate responsibility for or objective of infrastructure provision. Public and private ownership have different advantages and can deal with different problems. It is also shown that it would be a better option to integrate more than one public task (for example, investment and operation) into the same ownership, whether public or private, if they exhibit positive externalities.

Keywords: Public Sector Economics & Finance, Debt Markets, Infrastructure Economics, Contract Law, Transport Economics Policy & Planning

Suggested Citation

Estache, Antonio and Iimi, Atsushi and Ruzzier, Christian A., Procurement in Infrastructure: What Does Theory Tell Us ? (July 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1435140

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Atsushi Iimi

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Christian A. Ruzzier

University of San Andres (UMSA) - Department of Economics ( email )

Vito Dumas 284
B1644BID Victoria, Buenos Aires
Argentina

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