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Public‐private partnerships versus traditional procurement: Innovation incentives and information gathering
Author(s) -
Hoppe Eva I.,
Schmitz Patrick W.
Publication year - 2013
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12010
Subject(s) - procurement , incentive , business , agency (philosophy) , government (linguistics) , general partnership , private sector , government procurement , service (business) , industrial organization , finance , marketing , economics , microeconomics , economic growth , philosophy , linguistics , epistemology
A government agency wants a facility to be built and managed to provide a public service. Two different modes of provision are considered. In a public‐private partnership, the tasks of building and managing are bundled, whereas under traditional procurement, these tasks are delegated to separate private contractors. The two provision modes differ in their incentives to innovate and to gather private information about future costs to adapt the service provision to changing circumstances. The government agency’s preferred mode of provision depends on the information‐gathering costs, the costs of innovation efforts, and the degree to which effort is contractible.