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

21 Pages Posted: 22 Feb 2019

See all articles by Hojun Lee

Hojun Lee

Korea Development Institute (KDI)

Kiwan Kim

Korea Development Institute (KDI)

Date Written: September 26, 2018

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.

Keywords: bundling contract, infrastructure, public–private partnership, traditional procurement

JEL Classification: H54, H81

Suggested Citation

Lee, Hojun and Kim, Kiwan, Traditional Procurement versus Public–Private Partnership: A Comparison of Procurement Modalities Focusing on Bundling Contract Effects (September 26, 2018). Asian Development Bank Economics Working Paper Series No. 560 (September, 2018). Available at SSRN: https://ssrn.com/abstract=3339138 or http://dx.doi.org/10.2139/ssrn.3339138

Hojun Lee (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Kiwan Kim

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

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