The Political Economy of Public‐Private Partnerships and Analysis of Their Social Value

Abstract

This article applies political economy theory to public‐private partnerships (PPPs). First, we propose that social welfare is the appropriate normative evaluation criterion to evaluate the social value of PPPs. Second, we specify the goals of PPP participants, including private‐sector partners and governments. Third, we review the observed outcomes of PPPs and analyze them from both a political economy perspective and a social welfare perspective. Fourth, based on a comparison of the actual outcomes of PPPs to normatively desirable social welfare outcomes, we propose some ‘rules for governments’ concerning the design of government PPP institutions and the management of PPPs. We argue that if governments were to adopt these rules there would be fewer PPPs in total, they would be more like traditional government contracts and there would be a greater likelihood of improved social welfare. However, political economy theory also explains why implementation of any reform will be difficult.

Keywords: Public‐private partnerships, political economy, social welfare, cost‐benefit analysis