'Build it or Not': Normative and Positive Theories of Public-Private Partnerships

36 Pages Posted: 9 Aug 2006

See all articles by Jérôme Pouyet

Jérôme Pouyet

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Centre for Economic Policy Research (CEPR)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2006

Abstract

This paper analyzes whether the two tasks of building infrastructures which are socially useful and managing those assets should be bundled or not. When performances contracts can be written, both tasks should be performed altogether by the same firm when a better design of the infrastructure helps also to save on operating costs (positive externality). Otherwise (negative externality), tasks should be kept split apart and undertaken by different units. In incomplete contracting environments where the quality of the infrastructure may be hard to describe in advance, we isolate conditions under which either the traditional form of public provision of services or the more fashionable public-private partnership optimally emerges. The latter dominates when there is a positive externality but the private benefits from owning assets are small enough. Finally, we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision-makers.

Keywords: Public-private partnership, bundling/unbundling, agency costs, capture

JEL Classification: H11

Suggested Citation

Pouyet, Jerome and Martimort, David, 'Build it or Not': Normative and Positive Theories of Public-Private Partnerships (April 2006). CEPR Discussion Paper No. 5610. Available at SSRN: https://ssrn.com/abstract=923436

Jerome Pouyet (Contact Author)

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2870 (Phone)
+33 1 4458 2880 (Fax)

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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