Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts

  • Stéphane Saussier
  • Carine Staropoli
  • Anne Yvrande-Billon
Article

Abstract

While, in practice, the participation of private actors at the local and national government levels through various types of contractual agreements has been increasing over the last decades, there are still few studies on the functioning and performances of such relationships. Our aim is to highlight some significant theoretical and empirical issues concerning Public–Private Agreements. We first assess the potential sources of efficiency of such contractual agreements. We then examine the selection issue which is a crucial stage for the efficiency of such agreement. Finally, we stress the importance of the institutional framework showing how it might affect the agreements’ efficiency.

Keywords

Contracts Institutions Procurement auctions Public–private agreements 

References

  1. AECOM Consult, Inc. (2005). Synthesis of public–private partnership projects for roads, bridges and tunnels from around the world, 1985–2004. Washington, DC: United States Department of Transportation.Google Scholar
  2. Asker, J., & Cantillon, E. (2008). Procurement when price and quality matter. Working Paper, 06–24. New York University, Leonard N. Stern School of Business, Department of Economics.Google Scholar
  3. Athias, L., & Saussier, S. (2009). Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts. Unpublished paper.Google Scholar
  4. Bajari P., Tadelis S. (2001) Incentives versus transaction costs: A theory of procurement contracts. The RAND Journal of Economics 32(3): 387–407CrossRefGoogle Scholar
  5. Bajari, P., Houghton, S., & Tadelis, S. (2007). Bidding for incomplete contracts: An empirical analysis of adaptation costs. Cambridge, MA: National Bureau of Economic Research (NBER Working Paper Series 12051).Google Scholar
  6. Bajari P., McMillan R., Tadelis S. (2009) Auction versus negotiation in procurement: An empirical analysis. Journal of Law, Economics and Organization 25: 372–399CrossRefGoogle Scholar
  7. Baker G. P., Gibbons R., Murphy K. J. (2008) Strategic alliances: Bridges between islands of conscious power. Journal of the Japanese and International Economies 22: 146–163CrossRefGoogle Scholar
  8. Bennett J., Iossa E. (2006) Building and managing facilities for public services. Journal of Public Economics 90: 2143–2160CrossRefGoogle Scholar
  9. Blanc-Brude, F., Goldsmith, H., & Välilä, T. (2007). Public–private partnerships in Europe: An update. European Investment Bank & Financial Report No. 2007/03.Google Scholar
  10. Branco F. (1997) The design of multidimensional auctions. Rand Journal of Economics 28: 63–81CrossRefGoogle Scholar
  11. Brousseau, E., & Saussier, S., (2009). Contracting with governments. In J. A. Nickerson, & B. S. Silverman (Eds.), Advances in strategic management (vol. 26, pp. 487–522). Bingley: Emerald Group Publishing Limited.Google Scholar
  12. Bullow J., Klemperer P. (1996) Auction versus negotiation. American Economic Review 86: 180–194Google Scholar
  13. Burguet R., Che Y.-K. (2004) Competitive procurement with corruption. Rand Journal of Economics 35: 50–68CrossRefGoogle Scholar
  14. Calzolari, G., & Spagnolo, G. (2009). Relational procurement, Unpublished paper.Google Scholar
  15. Che Y.-K. (1993) Design competition through multidimensional auctions. Rand Journal of Economics 24: 668–680CrossRefGoogle Scholar
  16. Chong E., Huet F., Saussier F., Steiner F. (2006) Public private partnerships and prices: Evidence from water distribution in France. Review of Industrial Organization 29(1–2): 149–169CrossRefGoogle Scholar
  17. Chong, E., Staropoli, C., & Yvrande-Billon, A. (2009). Auction versus negotiation in public procurement: Looking for new empirical evidence. Unpublished manuscript.Google Scholar
  18. Coase R. H. (1937) The nature of the firm. Economica 4: 386–405CrossRefGoogle Scholar
  19. Crocker K. J., Masten S. E. (1996) Regulation and administered contracts revisited: Lessons from transaction-cost economics for public utility regulation. Journal of Regulatory Economics 9: 5–39CrossRefGoogle Scholar
  20. Dal Bó E. (2006) Regulatory capture: A review. Oxford Review of Economic policy 22(2): 203–225CrossRefGoogle Scholar
  21. De Bettignies J., Ross T. (2009) Public–private partnerships and the privatization of the finance function: An incomplete contracts approach. International Journal of Industrial Organization 27: 358–368CrossRefGoogle Scholar
  22. De Silva D. G., Dunne T., Kankanamge A., Kosmopoulou G. (2008) The impact of public information on bidding in highway procurement auctions. European Economic Review 52: 150–181CrossRefGoogle Scholar
  23. De Silva D. G., Kosmopoulou G., Lamarche C. (2009) The effect of information on the bidding and survival of entrants in procurement auctions. Journal of Public Economics 93: 58–72Google Scholar
  24. Desrieux, C., Chong, E., & Saussier, S., (2009). Putting all one’s eggs in one basket: Relational contracts and the provision of local public services. Unpublished paper. Retrieved July 21 2009 from: http://www.webssa.net/files/BundlingFV-July09_0.pdf.
  25. Doni, N. (2007). A comparison of alternative procedures for the selection of the private partner in PPP projects. Working Paper No. 10/2007. Dipartimento di Scienze Economiche, Università degli Studi di Firenze.Google Scholar
  26. Engel E., Fischer R., Galetovic A. (1997) Highway franchising: Pitfalls and opportunities. American Economic Review 87(2): 68–72Google Scholar
  27. Engel, E., Fischer, R., & Galetovic, A. (2006). Renegotiation without holdup: Anticipating spending and infrastructure concessions. NBER Working Paper No. 12339.Google Scholar
  28. Engel, E., Fischer, R., & Galetovic, A. (2009). Public-private partnerships: When and how? SCIP working paper 379.Google Scholar
  29. Estache A. (2006) PPI partnerships vs. PPI divorces in LDCs. Review of Industrial Organization 29: 3–26CrossRefGoogle Scholar
  30. Estache A., Wren-Lewis L. (2009) Towards a theory of regulation for developing countries: Insights from Jean-Jacques Laffont’s last book. Journal of Economic Literature 47(3): 729–770CrossRefGoogle Scholar
  31. Europe Economics. (2006). Evaluation of public procurement directives. European Commission, DG Internal Market.Google Scholar
  32. Gibbons R. (2005) Four formal(izable) theories of the firm. Journal of Economic Behavior and Organization 58: 202–247CrossRefGoogle Scholar
  33. Gil, R., & Marion, J. (2009). The role of repeated interactions, self-enforcing agreements and relational [sub]contracting: Evidence from California highway procurement auctions. Unpublished paper. Retrieved from http://people.ucsc.edu/~rgil/Gil_Marion_Oct09.pdf. Accessed 12 Oct 2009.
  34. Goldberg V. P. (1977) Competitive bidding and the production of precontract information. Bell Journal of Economics 8: 250–261CrossRefGoogle Scholar
  35. Guasch J. L. (2004) Granting and renegotiating infrastructure contracts: Doing it rights. The World Bank Institute, Washington, DCCrossRefGoogle Scholar
  36. Guasch J. L., Laffont J.-L., Straub S. (2006) Renegotiation of concession contracts: A theoretical approach. Review of Industrial Organization 29: 55–73CrossRefGoogle Scholar
  37. Guasch J. L., Laffont J.-L., Straub S. (2007) Concessions of infrastructure in Latin America: Government-led renegotiation. Journal of Applied Econometrics 22(7): 1267–1294CrossRefGoogle Scholar
  38. Guasch J. L., Laffont J.-L., Straub S. (2008) Renegotiation of concession contracts in Latin America. International Journal of Industrial Organization 26(2): 421–442CrossRefGoogle Scholar
  39. Guasch J.-L., Straub S. (2009) Corruption and concession renegotiations: Evidence from the water and transport sectors in Latin America. Utilities Policy 19(2): 185–190CrossRefGoogle Scholar
  40. Hart O. D. (2003) Incomplete contract and public ownership: Remarks and an application to public–private partnerships.. Economic Journal 113: 69–76CrossRefGoogle Scholar
  41. Hart O. D., Tirole J. (1988) Contract renegotiation and Coasian dynamics. Review of Economic Studies 55: 509–540CrossRefGoogle Scholar
  42. Henisz W. (2002) The institutional environment for infrastructure investment. Industrial and Corporate Change 11(2): 355–389CrossRefGoogle Scholar
  43. HM Treasury (2006). PFI: Strengthening long-term partnerships. London: The Stationay Office.Google Scholar
  44. Iossa, E., & Martimort, D. (2008). The simple micro-economics of public-private partnerships. CEIS Working Paper No. 139. Retrieved from http://ssrn.com/abstract=1271082. Accessed 12 Oct 2009.
  45. Laffont J.-J. (2005) Regulation and development. Cambridge University Press, CambridgeGoogle Scholar
  46. Laffont J.-J., Tirole J. (1987) Auctioning incentive contracts. Journal of Political Economy 95(5): 921–937CrossRefGoogle Scholar
  47. Laffont J.-J., Tirole J. (1990) Adverse selection and renegotiation in procurement. Review of Economic Studies 75: 597–626Google Scholar
  48. Lafontaine F., Slade M. (2007) Vertical integration and firm boundaries: The evidence. Journal of Economic Literature 45(3): 629–685CrossRefGoogle Scholar
  49. Levin, J., & Tadelis, S. (2009). Contracting for government services: Theory and evidence from US cities. Journal of Industrial Economics, forthcoming.Google Scholar
  50. Levy B., Spiller P. T. (1994) The institutional foundations of regulatory commitment: A comparative analysis of telecommunications regulation. Journal of Law Economics and Organization 10(2): 201–246Google Scholar
  51. Manelli A., Vincent D. R. (1995) Optimal procurement mechanisms. Econometrica 63(3): 591–620CrossRefGoogle Scholar
  52. Marshall R. C., Marx L. M. (2009) The vulnerability of auctions to bidder collusion. Quarterly Journal of Economics 124(2): 883–910CrossRefGoogle Scholar
  53. Martimort, D. (2008). Introduction to the IJIO symposium on public/private partnerships. International Journal of Industrial Organization, 26 iii–iv.Google Scholar
  54. Maskin E., Tirole J. (2008) Public–private partnerships and government spending limits. International Journal of Industrial Organization 26(2): 412–420CrossRefGoogle Scholar
  55. McAfee R. P., McMillan J. (1987) Auctions and bidding. Journal of Economic Literature 25: 699–738Google Scholar
  56. Milgrom P. (2004) Putting auction theory to work. Cambridge University Press, CambridgeGoogle Scholar
  57. Milgrom P., Weber R. J. (1982) A theory of auctions and competitive bidding. Econometrica 50: 463–483Google Scholar
  58. National Audit Office (2001) Managing the relationship to secure a successful partnership in PFI project. London: The Stationery Office.Google Scholar
  59. National Audit Office (2007) Improving the PFI tendering process. London: The Stationery Office.Google Scholar
  60. North D. (1990) Institutions, institutional change and economic performance. Cambridge University Press, New YorkGoogle Scholar
  61. Perotti E. C. (1995) Credible privatization. American Economic Review 85(4): 847–859Google Scholar
  62. Rose-Ackerman S. (1999) Corruption and government: Causes, consequences and reform. Cambridge University Press, CambridgeGoogle Scholar
  63. Spiller P. T. (1996) Institutions and commitment. Industrial and Corporate Change 5: 421–452Google Scholar
  64. Spiller, P. T. (2008). An institutional theory of public contracts: Regulatory implications. NBER Working Paper No. 14152.Google Scholar
  65. Williamson O. E. (1976) Franchise bidding for natural monopolies. In general and with respect to CATV. Bell Journal of Economics 7: 73–104CrossRefGoogle Scholar
  66. Williamson O. E. (1999) Public and private bureaucracies: A transaction cost economics perspective. Journal of Law Economics and Organization 15(1): 306–342CrossRefGoogle Scholar
  67. Yescombe E. (2007) Public private partnerships: Principles of policy and finance. Elsevier, AmsterdamGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  • Stéphane Saussier
    • 1
  • Carine Staropoli
    • 2
  • Anne Yvrande-Billon
    • 2
  1. 1.Gregor—IAEUniversity Paris I SorbonneParisFrance
  2. 2.Centre d’Economie de la Sorbonne (CES)University Paris I SorbonneParisFrance

Personalised recommendations