Last Updated:
17 Oct 2021

Public-Private Partnerships: When and How

Author: Eduardo Engel, Ronald Fischer, Alexander Galetovic

When are public-private partnerships (PPPs) better than conventional provision and regulated privatization? And should PPP contracts be structured and governed when this is the case? We show that the defining features of a PPP are (i) bundling of construction and operation, (ii) private but temporary ownership of assets and (iii) intertemporal risk sharing with the public sector. Thus some characteristics of PPPs are akin to privatization while others are similar to conventional provision. Since incentives for efficient building and management are related to bundling, PPPs are closer to privatization in this regard. As the discounted government budget under a PPP is similar to that under conventional provision, PPPs are closer to conventional provision when it comes to budgetary accounting. We also show that avoiding distortionary taxation and relieving strained government budgets are weak arguments for PPPs.