Working Paper: CEPR ID: DP13406
Authors: Eva I. Hoppe; Patrick W. Schmitz
Abstract: The government wants an infrastructure-based public service to be provided. First the infrastructure has to be built, subsequently it has to be operated. Should the government bundle the building and operating tasks in a public-private partnership? Or should it choose traditional procurement, i.e. delegate the tasks to different firms? Each task entails unobservable investments to come up with innovations. It turns out that depending on the nature of the innovations, bundling may either stimulate or discourage investments. Moreover, we find that if renegotiation cannot be prevented, a public-private partnership may lead the government to deliberately opt for a technologically inferior project.
Keywords: procurement; innovations; public-private partnerships; moral hazard; renegotiation
JEL Codes: D86; L33; H11; H54; H57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bundling the building and operating tasks in a public-private partnership (H44) | stimulates investments in innovation (O31) |
| bundling the building and operating tasks in a public-private partnership (H44) | discourages investments in innovation (O31) |
| successful innovation in the building stage (O36) | increases the value of a subsequent innovation in the operating stage (O31) |
| expected rents in the operating stage (R33) | impact incentives in the building stage (L74) |
| renegotiation possibility (C78) | influences government preference for technologically inferior projects (H54) |
| government’s ability to commit to contracts (H57) | influences incentives for innovation (O31) |