DP7681 Public-private partnerships versus traditional procurement: Innovation incentives and information gathering

Author(s): Eva I Hoppe-Fischer, Patrick W. Schmitz
Publication Date: February 2010
Keyword(s): Incomplete contracts, Information gathering, Integration versus separation, Public-private partnerships
JEL(s): D86, H11, L33
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7681

A government agency wants a facility to be built and managed to provide a public service. Two different modes of provision are considered. In a public-private partnership, the tasks of building and managing are bundled, while under traditional procurement, these tasks are delegated to separate private contractors. The two modes differ in their incentives to innovate and to gather private information about future costs to adapt the service provision to changing circumstances. Depending on the potential benefits of such adaptations, the government agency's preferred mode of provision may be different from the one that should be chosen from a welfare perspective.