Imperfect Bundling in Public–Private Partnerships

• Published date: 01 February 2015
• Author: LUCIANO GRECO
• Date: 01 February 2015
• DOI: http://doi.org/10.1111/jpet.12122

IMPERFECT BUNDLING IN PUBLIC–PRIVATE PARTNERSHIPS

LUCIANO GRECO

Universit`

adegliStudidiPadova

Abstract

We provide a first contribution to analyze how agency

problems within the private consortium (i.e., imperfect

bundling of private tasks) affect the performance of public–

private partnerships (PPPs). When both public–private and

private–private contracts are incomplete, the profit-sharing

rules are key to regulate private partners’ incentives. In fail-

ing to consider the role of imperfect bundling, the scope for

PPPs may be overrated (or underrated) if the social benefits

of infrastructure quality are large (or small) as compared

to the social cost of operation efficiency. Also, it may be op-

timal for the government to restrict the admissible gover-

nance of private consortia.

1. Introduction

The global financial crisis has caused a marked decline in the value of

public–private partnerships (PPPs) during recent years (EPEC 2013). The

mentioned dynamics is conventionally considered a temporary break in the

long-term cross-country trend toward a larger involvement of private firms in

infrastructure financing and operation. From this perspective, a crucial role

is played by complex contractual or institutional forms of PPPs (Wagenvoort,

de Nicola, and Kappeler 2010).

Luciano Greco, Dipartimento di Scienze economiche, Universit`

a degli Studi di Padova,

via del Santo 33 - 35123 Padova, Italy (luciano.greco@unipd.it).

For very helpful reports, I would like to thank the editor, Myrna Wooders,the associate

editor, and the referee of the Journal of Public Economic Theory; for worthy comments and

suggestions, I would also like to thank Eduardo Engel, Elisabetta Iossa, David Martimort,

Flavio Menezes, Giancarlo Spagnolo, and other participants of the 2012 APET Workshop

on PPPs (Queensland University), the 2013 workshop on “The Economics of Public Pro-

curement” (VTI Stockholm), and the 2013 SIE Conference special session on Public Pro-

curement (University of Bologna).

Received April 21, 2014; Accepted May 4, 2014.

C2014 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 17 (1), 2015, pp. 136–146.

136