Governing public-private partnerships: The problem of low-cost decisions

Karsten Mause

Article ID: 1154
Vol 3, Issue 2, 2019

VIEWS - 662 (Abstract) 396 (PDF)

Abstract


In many cases, the expected efficiency advantages of public-private partnership (PPP) projects as a specific form of infrastructure provision did not materialize ex post. From a Public Choice perspective, one simple explanation for many of the problems surrounded by the governance of PPPs is that the public decision-makers being involved in the process of initiating and implementing PPP projects (namely, politicians and public bureaucrats) in many situations make low- cost decisions in the sense of Kirchgässner (1948–2017). That is, their decisions may have a high impact on the wealth of the jurisdiction in which the PPP is located (most notably, on the welfare of citizen-taxpayers in this jurisdiction) but, at the same time, these decisions often only have a low impact on the private welfare of the individual decision-makers in politics and bureaucracy. The latter, for example, in many settings often have a low economic incentive to monitor/control what the private-sector partners are doing (or not doing) within a PPP arrangement. The purpose of this paper is to draw greater attention to the problems created by low-cost decisions for the governance of PPPs. Moreover, the paper discusses potential remedies arising from the viewpoint of Public Choice and Constitutional Political Economy.


Keywords


Public Private Partnerships; PPPs; Efficiency; Public Choice; Government Failure

Full Text:

PDF


References


Arrow, Kenneth J. (1985). The Economics of Agency. In: John W. Pratt and Richard J. Zeckhauser (Eds.). Principals and Agents. The Structure of Business. Boston: Harvard University Press, 37–51.

Benz, Matthias and Alois Stutzer (2004). Are Voters better informed when they have a larger say in Politics? Evidence for the European Union and Switzerland. Public Choice 119 (1-2): 31–59.

Besley, Timothy (2006). Principled Agents? The Political Economy of Good Government. Oxford: Oxford University Press.

Blankart, Charles B. (2008). Öffentliche Finanzen in der Demokratie: Eine Einführung in die Finanzwissenschaft [Public finance in a democracy: An introduction to public finance]. 7th edition. München: Vahlen.

BMVBS (2019). www.ppp-projektdatenbank.de. Database hosted by German Federal Ministry of Transport, Building & Urban Affairs (BMVBS), accessed June 11.

Borcherding, Thomas E., Werner W. Pommerehne and Friedrich Schneider (1982). Comparing the Efficiency of Private and Public Production: The Evidence from Five Countries. Zeitschrift für Nationalökonomie 82(2, Supplementum): 127–156.

Bowman, Louise (2000). P3 – Problem, Problem, Problem. Project Finance, June 2000 issue, pp. 25–27.

Buchanan, James M. (1987). The Constitution of Economic Policy. American Economic Review 77(3): 243–250.

Buchanan, James M. (1991). The Foundations of Normative Individualism. In: James

M. Buchanan. The Economics and the Ethics of Constitutional Order. Ann Arbor: University of Michigan Press, 221–229.

Caplan, Bryan (2011). The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Princeton: Princeton University Press.

Coviello, Decio and Stefano Gagliarducci (2017). Tenure in office and public procurement. American Economic Journal: Economic Policy 9(3): 59–105.

Deloitte (2006). Closing the Infrastructure Gap: The Role of Public-Private Partnerships. Hong Kong.

Downs, Anthony (1957). An Economic Theory of Democracy. New York: Harper & Row.

Ernst & Young (2007). Privatisierungen und ÖPP als Ausweg? Kommunalfinanzen unter Druck – Handlungsoptionen für Kommunen [Privatizations and PPP as a way out? Local finances under pressure – Options for action for municipalities]. Stuttgart.

European Court of Auditors (2018). Public Private Partnerships in the EU: Widespread shortcomings and limited benefits. Special Report No. 9. Luxembourg.

Frey, Bruno S. and Alois Stutzer (2006). Direct Democracy: Designing a Living Constitution. In: Roger D. Congleton and Birgitta Swedenborg (Eds.). Democratic Constitutional Design and Public Policy: Analysis and Evidence. Cambridge, MA: MIT Press, 39–80.

Frey, Bruno S., Alois Stutzer and Susanne Neckermann (2011). Direct Democracy and the Constitution. In: Alain Marciano (Ed.). Constitutional Mythologies: New Perspectives on Controlling the State. New York: Springer, 107–119.

German Courts of Auditors (2011). Gemeinsamer Erfahrungsbericht zur Wirtschaftlichkeit von ÖPP-Projekten [Joint report by the national and state-level audit courts on the efficiency of PPP projects. Wiesbaden.

Geys, Benny and Karsten Mause (2016). The Limits of Electoral Control: Evidence from Last-Term Politicians. Legislative Studies Quarterly 41(4): 873–898.

Grimsey, Darrin and Mervyn K. Lewis (2007). Public Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance. Cheltenham, UK: Edward Elgar Publishing.

Guttman, Daniel (2002). Privatisation, Public Purpose and Private Service: The Twentieth Century Culture of Contracting Out and the Evolving Law of Diffused Sovereignty. OECD Journal on Budgeting 2(4): 85–154.

Hammami, Mona, Jean-Francois Ruhashyankiko and Etienne B. Yehoue (2006). Determinants of Public-Private Partnerships in Infrastructure. IMF Working Paper 06/99. Washington, D.C.: International Monetary Fund.

Heine, Klaus and Erich Oltmanns (2016). Towards a political economy of statistics. Statistical Journal of the IAOS 32(2): 201–209.

Hodge, Graeme A. (1999). Competitive Tendering and Contracting Out: Rhetoric or Reality? Public Productivity & Management Review 22(4): 455–469.

Hyytinen, Ari, Sofia Lundberg and Otto Toivanen (2009). Politics and Procurement: Evidence from Cleaning Contracts. Helsinki Center of Economic Research Working Paper No. 277.

Kirchgässner, Gebhard (1992). Towards a Theory of Low-Cost Decisions. European Journal of Political Economy 8(2): 305–320.

Kirchgässner, Gebhard (2008). Homo Oeconomicus: The Economic Model of Behaviour and its Applications in Economics and other Social Sciences. New York: Springer.

Kirchgässner, Gebhard (2019). Voting and Popularity. In: Roger D. Congleton, Bernard N. Grofman and Stefan Voigt (Eds.). The Oxford Handbook of Public Choice. Volume 2. Oxford: Oxford University Press, 853–879.

Kirchgässner, Gebhard and Werner W. Pommerehne (1993). Low-Cost Decisions as a Challenge to Public Choice. Public Choice 77(1): 107–115.

KPMG (2009). The Changing Face of Infrastructure. Frontline Views from Private Sector Infrastructure Providers. KPMG International in Cooperation with the Economist Intelligence Unit. Amstelveen.

Mause, Karsten (2014). Self-Serving Legislators? An Analysis of the Salary-Setting Institutions of 27 EU Parliaments. Constitutional Political Economy 25(3): 154– 176.

Mause, Karsten and Thomas Krumm (2011). Public-Private Partnershipping as a Tool of Government: Exploring its Determinants across German States. German Politics 20(4): 527–544.

Mueller, Dennis C. (2003). Public Choice III. Cambridge: Cambridge University Press.

Noltensmeier, Silke (2008). Public Private Partnership und Korruption [PPP and corruption]. Berlin: Duncker & Humblot.

OECD (2008). Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money. Paris.

Oppermann, Kai and Alexander Spencer (2016). Studying fiascos: Bringing public and foreign policy together. Journal of European Public Policy 23(5): 643–652.

Poutvaara, Panu (2017). Beauty in politics. CESifo forum 18(1): 37–43.

Progressive States Network (2007). Privatizing in the Dark: The Pitfalls of Privatization & Why Budget Disclosure is Needed, with a 50-State Comparison of Privatization Trends. New York.

PWC (2005). Delivering the PPP Promise: A Review of PPP Issues and Activity. London: PricewaterhouseCoopers.

Rügemer, Werner (2004). Maut und Mehr. Toll Collect oder der Ausverkauf der Politik [Toll and more. Toll Collect, or the sale of politics]. Blätter für deutsche und internationale Politik, Issue 4, 415–426.

Rügemer, Werner (2008). “Heuschrecken” im öffentlichen Raum: Public Private Partnership – Anatomie eines globalen Finanzinstruments [“Grasshoppers” in the Public Sphere: Public Private Partnerships – Anatomy of a Global Financial Instrument]. Bielefeld: Transcript Verlag.

Sappington, David E.M. (1991). Incentives in Principal-Agent Relationships. Journal of Economic Perspectives 5(2): 45–66.

Schnellenbach, Jan (2018). On the Behavioural Political Economy of Regulating Fake News. ORDO - Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft 68, 159–178.

Shleifer, Andrei and Robert W. Vishny (1998). The Grabbing Hand: Government Pathologies and Their Cures. Cambridge, Mass.: Harvard University Press.

Siemiatycki, Matti (2007). What’s the Secret? Confidentiality in Planning Infrastructure Using Public/Private Partnerships. Journal of the American Planning Association 73(4): 388–403.

Taleb, Nassim Nicholas (2018). Skin in the Game: Hidden Asymmetries in Daily Life. London: Allen Lane.

Tullock, Gordon, Arthur Seldon and Gordon L. Brady (2002). Government Failure: A Primer in Public Choice. Washington, DC: Cato Institute.

Vanberg, Viktor J. (2005). Market and State: The Perspective of Constitutional Political Economy. Journal of Institutional Economics 1(1): 23–49.

Vining, Aidan R. and Anthony E. Boardman (2008). Public-Private Partnerships: Eight Rules for Government. Public Works Management & Policy 13(2): 149–161.

Wagner, Richard E. (2016). Politics as a peculiar business: Insights from a theory of entangled political economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing.

Warfelmann, Anna Caroline (2015). The Politics of Parliamentary Pensions in Western Democracies: Understanding MPs’ Self-Imposed Cutbacks. Frankfurt: Peter Lang.

Weizsäcker, Ernst U. von, Oran R. Young and Matthias Finger (Eds.) (2005). Limits to Privatization: How to avoid too much of a good thing. A Report to the Club of Rome. London: Earthscan.

Welch, Jack (2006). Public-Private Partnerships in Germany: German Budget Deficits Present Investment Opportunities. Infrastructure Journal (Spring issue): 37–39.




DOI: https://doi.org/10.24294/jipd.v3i2.1154

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Karsten Mause

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

This site is licensed under a Creative Commons Attribution 4.0 International License.