How (Not) to Foster Innovations in Public Infrastructure Projects

35 Pages Posted: 7 Jan 2019

See all articles by Eva I. Hoppe

Eva I. Hoppe

University of Cologne - Department of Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Date Written: December 2018

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, a public-private partnership may lead the government to deliberately opt for a technologically inferior project.

Keywords: innovations, moral hazard, Procurement, public-private partnerships, Renegotiation

JEL Classification: D86, H11, H54, H57, L33

Suggested Citation

Hoppe, Eva I. and Schmitz, Patrick W., How (Not) to Foster Innovations in Public Infrastructure Projects (December 2018). CEPR Discussion Paper No. DP13406. Available at SSRN: https://ssrn.com/abstract=3310315

Eva I. Hoppe (Contact Author)

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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