Greco L. (2012).

Imperfect Bundling In Public-Private Partnerships. Marco Fanno Working Paper n.147-2012



The economic literature on PPPs has generally overlooked agency problems within private consortia. We provide a first contribution in this direction, relying on a simple incomplete contracts framework where a Builder and an Operator set up a Special Purpose Vehicle (SPV) to carry out a contract with the government. Because of incomplete contracts, the bundling of tasks is imperfect, and the SPV ownership structure is the main tool to regulate the power of private incentives. The scope for welfare-improving PPPs reduces with respect to the case of perfect bundling, and the private negotiation always awards a suboptimal SPV-ownership share to the Builder. Thus, imposing ownership requirements in PPPs is a welfare-improving policy.