Working Paper: CEPR ID: DP5610
Authors: David Martimort; Jérôme Pouyet
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: agency costs; bundling; unbundling; capture; public-private partnership
JEL Codes: H11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Quality of infrastructure (building) (L74) | Efficiency of asset management (operating) (G31) |
| Negative externality (increased operating costs) (D62) | Tasks should be unbundled (L23) |
| Political economy factors (P19) | Favor bundling despite negative externalities (D62) |