Skip to main content

Advertisement

SpringerLink
Log in

Public-Private Partnerships, Dividing Operational Stage, and Optimal Governance Structures

  • Published:
Public Organization Review Aims and scope Submit manuscript

Abstract

Public-Private Partnerships (PPP) include various governance structures which distribute tasks and ownership of facility differently. Many earlier theoretical studies using the incomplete contracts theory assume two tasks, building and operation, for the projects of public services. This may be too simple, however, to consider complicated projects such as prisons. Critics argue that those studies could not fully explain the reality. In addition, Those models are not suitable for comparing different PPP approaches such as Private Finance Initiative (PFI) and private management. The present paper divides the task of operation into two (maintenance and security). This enables us to compare four relevant governance structures in a single framework, and to suggest the conditions for successful PPP prison projects. The main findings are that the tasks of maintenance and security should be conducted by different parties (private consortium and civil servant) under certain conditions, while unbundling construction and operation stages is desirable in other cases.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

Notes

  1. Hoppe et al. (2013) conducted an experimental investigation based on the model of Hart (2003) and found support for the theoretical prediction.

  2. A few papers such as Iossa and Martimort (2008) take risks and financing into account based on the model of incomplete contracts.

  3. In the earlier version of this paper I also assumed the task of training for rehabilitation and an investment variable for that. Eliminating the task, however, did not change the basic results of the paper.

  4. We assume that a consortium of firms acts as if it were a single firm. For the influence of contractual incompleteness on the consortium, see Greco (2012).

  5. In earlier version of the paper I also included the UK type of BOT, but its result was similar to full privatization and hence I eliminated it. In the UK, there are private management type of prisons in addition to BOT type.

  6. The superscript C shows the task (Construction) which is affected by the investment.

  7. The superscripts M and S show Maintenance and Security, respectively. Because the cost of maintenance is influenced by the investment i as well as e, they are denoted c Mi and c Me, respectively. Similarly, the reductions in security cost are denoted c Si and c Su.

  8. This means that we do not assume negative externalities of i as in Bennett and Iossa (2006). As mentioned in Chen and Chiu (2010), examples of negative externality are relatively rare.

  9. While in Hart et al. (1997) the government can bargain with or replace the civil servant, it is actually not very usual.

  10. As mentioned in footnote 5, the UK type of BOT exhibited similar results as full privatization in the model.

  11. One may assume other externalities from investment i and have more complexed results where, for example, the residual value is the largest under full privatization.

References

  • Bennett, J., & Iossa, E. (2006). Building and managing facilities for public services. Journal of Public Economics, 90, 2143–2160.

    Article  Google Scholar 

  • Chen, B.R., & Chiu, Y.S. (2010). Public-private partnerships: task interdependence and contractibility. International Journal of Industrial Organization, 28, 591–603.

    Article  Google Scholar 

  • Cabral, S., & Saussier, S. (2013). Organizing prisons through public-private partnerships: a cross-country investigation. Brazilian Administration Review, 10, 100–120.

    Article  Google Scholar 

  • Greco, L. (2012). Imperfect bundling in public-private partnerships. Department of Economics and Management. University of Padua, “Marco Fanno” Working Papers n. 147.

  • Hart, O., Shleifer, A., & Vishny, R.W. (1997). The proper scope of government: theory and an application to prisons. Quarterly Journal of Economics, 112, 1127–1161.

    Article  Google Scholar 

  • Hart, O. (2003). Incomplete contracts and public ownership: remarks and application to public-private partnerships. The Economic Journal, 113, 69–76.

    Article  Google Scholar 

  • Hoppe, E.I., Kusterer, D.J., & Schmitz, P.W. (2013). Public-private partnerships versus traditional procurement: an experimental investigation. Journal of Economic Behavior and Organization, 89, 145–166.

    Article  Google Scholar 

  • Hoppe, E.I., & Schmitz, P.W. (2010). Public versus private ownership: Quantity contracts and the allocation of investment tasks. Journal of Public Economics, 94, 258–268.

    Article  Google Scholar 

  • Iossa, E., & Martimort, D. (2008). The simple micro-economics of public private partnerships. Department of Economics, University of Bristol, UK, The Centre for Market and Public Organisation.

  • National Audit Office. (2003a). PFI: Construction Performance. London: National Audit Office.

    Google Scholar 

  • National Audit Office. (2003b). The Operational Performance of PFI Prisons. London: National Audit Office.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Marketing and Distribution Sciences, 3-1 Gakuen Nishi-machi, Nishi-ku, Kobe, 651-2188, Japan

    Kosuke Oshima

Authors
  1. Kosuke Oshima
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Kosuke Oshima.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Oshima, K. Public-Private Partnerships, Dividing Operational Stage, and Optimal Governance Structures. Public Organiz Rev 16, 443–459 (2016). https://doi.org/10.1007/s11115-015-0321-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11115-015-0321-3

Keywords

Search

Navigation