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Government Opportunism in Public‐Private Partnerships
Author(s) -
VALERO VANESSA
Publication year - 2015
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12105
Subject(s) - opportunism , incentive , procurement , government (linguistics) , business , government procurement , public economics , public service , economics , industrial organization , finance , microeconomics , marketing , public administration , market economy , linguistics , philosophy , political science
This paper analyzes the contracting out of public services through public‐private partnerships (PPP) subject to government opportunism. In PPP, the building of public infra‐structure and the provision of related services are procured through only one contract. On the one hand, such bundling of tasks provides incentives to invest in the infrastructure to minimize the cost of providing public services over the long term. On the other hand, it creates incentives for the government to behave opportunistically, by not respecting the terms of the long‐term contractual agreement. Contrarily, in the traditional procurement (TP), the public service provision tasks are contracted out separately. The purpose of this paper is two fold. First, we show that government commitment not to engage in opportunistic behavior is the key factor determining the cost efficiency of PPP. Second, we specify the economic determinants of government's choice between PPP and TP under government opportunism.