Vol 3, No 2 (Published): Special Issue - Can Public-Private Partnerships Improve Efficiency in Building Infrastructure?

Table of Contents

Open Access
Editorial
Article ID: 1158
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by Giuseppe Eusepi, Richard E. Wagner, Qingyang Gu
J. Infras. Policy. Dev. 2019 , 3(2);    791 Views
Abstract Our intention in assembling this special issue of the Journal of Infrastructure ,   Policy  and  Development  is to offer a state-of-the-art tour through the political economy issues associated with the provision of public infrastructure, and with the use of Public-Private Partnerships (PPPs) in particular. Anyone who is familiar with PPPs cannot fail to be impressed by the diversity of positions and claims regarding their properties. Some scholars maintain that PPPs are an efficient tool to enhance productivity due to their ability to manage demand-side risk. In contrast, other scholars see in PPPs a scheme whereby the public assumes the risk while the private partner takes the profit.
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Open Access
Article
Article ID: 1148
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by Ana Maria Ruiz Rivadeneira, Ludger Schuknecht
J. Infras. Policy. Dev. 2019 , 3(2);    772 Views
Abstract Public-Private Partnerships (PPPs) can be an effective way of delivering infrastructure. However, achieving value for money can be difficult if government agencies are not equipped to manage them effectively. Experience from OECD countries shows that the availability of finance is not the main obstacle in delivering infrastructure. Governance—effective decision-making—is the most influential aspect on the quality of an investment, including PPP investments. In 2012, the OECD together with its member countries developed principles to ensure that PPPs deliver value for money transparently and prudently, supported by the right institutional capacities and processes to harness the upside of PPPs without jeopardizing fiscal sustainability. Survey results from OECD countries show that some dimensions of the recommended practices are well applied and past and ongoing reforms show progress. However, other principles have not been well implemented, reflecting the continuing need for improving public governance of PPPs across countries.
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Open Access
Article
Article ID: 1149
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by Bruno S. Frey
J. Infras. Policy. Dev. 2019 , 3(2);    515 Views
Abstract There is a large literature on public-private-partnership, covering many different areas and aspects. This article deals with a specific but important aspect: the decision-making mechanisms to choose the management of PPP enterprises. In this sector, a suitable choice of managers is of particular importance because the persons chosen must balance the public and private interests. This is often difficult to achieve. Two new procedures are discussed, “Directed Random Choice” and “Rotating CEOs”. In each case, the advantages and disadvantages of the procedure of choosing the managers of PPP enterprises are discussed and evaluated. It is concluded that the two novel mechanisms should be seriously considered when choosing the managers of PPP enterprises.
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Open Access
Article
Article ID: 1150
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by Cristina Giorgiantonio
J. Infras. Policy. Dev. 2019 , 3(2);    723 Views
Abstract Starting from the ‘90s, there has been a significant increase in PPP use in the public sector in Europe, benefiting the implementation of infrastructure projects. In Italy, PPP is still much more limited than in such countries as the UK and France: the projects funded are smaller and the sectors involved are less appropriate. Based on the economic literature, European initiatives and international comparisons, the paper examines aspects of regulations that could encourage the appropriate use of PPP and considers the problems with the Italian regulations, while proposing some corrective measures. The main limitations involve: i) the absence of adequate preliminary assessments about the advantages of using PPP rather than the traditional procurement, ii) the relative lack of attention to the contract terms, iii) inadequate safeguards to ensure the bankability of the projects, and iv) limited information transparency and accessibility.
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Open Access
Article
Article ID: 1151
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by Gordon L. Brady
J. Infras. Policy. Dev. 2019 , 3(2);    480 Views
Abstract This paper uses Public Choice analysis to examine the case for and experience with Public-Private Partnerships (PPPs). A PPP is a contractual platform which connects a governmental body and a private entity. The goal is to provide a public sector program, service, or asset that would normally be provided exclusively by a public sector entity. This paper focuses on PPPs in developed countries, but it also draws on studies of PPPs in developing countries. The economics literature generally defines PPPs as long-term contractual arrangements between a public authority (local or central government) and a private supplier for the delivery of services. The private sector supplier takes responsibility for building infrastructure components, securing financing of the investment, and then managing and maintaining this facility. However, in addition to those formed through contracts, PPPs may take other forms such as those developed in response to tax subvention or coercion, as in the case of regulatory mandates. A key element of PPP is that the private partner takes on a significant portion of the risk through a schedule of specified remuneration, contingency payments, and provision for dispute resolution. PPPs typically are long-term arrangements and involve large corporations on the private side, but may also be limited to specific phases of a project. The types of PPPs discussed in this paper exclude arrangements which may result from government mandates such as the statutory emission mandates imposed on automobile manufacturers and industrial facilities (e.g., power plants). It also excludes PPP-like organizations resulting from US section 501(c)(3) of the Internal Revenue Code, which provides tax subsidies for certain public charities, scientific research organizations, and organizations whose goals are to prevent cruelty to animals or erect public monuments at no expense to the government. This paper concludes that an array of Public Choice tools are applicable to understanding the emergence, success, or failure of PPPs. Several short case studies are provided to illustrate the practicalities of PPPs. 
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Open Access
Article
Article ID: 1152
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by Richard E. Wagner
J. Infras. Policy. Dev. 2019 , 3(2);    481 Views
Abstract It has become commonplace to describe publicly provided infrastructure as being in a sorry state and to advance public-private partnership as a possible remedy. This essay adopts a skeptical but not a cynical posture toward those claims. The paper starts by reviewing the comparative properties of markets and politics within a theory of budgeting where the options are construction and maintenance. This analytical point of departure explains how incongruities between political and market action can favor construction over maintenance. In short, political entities can engage in an implicit form of public debt by reducing maintenance spending to support other budgetary items. This implicit form of public debt does not manifest in higher interest rates but rather manifests in crumbling bridges and other infrastructure due to the transfer of maintenance into other budgetary activities.
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Open Access
Article
Article ID: 1155
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by Reiner Eichenberger, Patricia Schafer, David Stadelmann
J. Infras. Policy. Dev. 2019 , 3(2);    1485 Views
Abstract The wealth of nations depends on the quality of their infrastructure. Often, however, infrastructure suffers from ineffective investments and poor maintenance. Proposed solutions, such as New Public Management or Public-Private Partnerships (PPPs) tend to develop into Politicians-Private Partnerships as politicians collude with private firms to exploit present and future tax-payers. Therefore, it is necessary to give citizens better control over collective decision making. While there is a significant economic literature on empowering citizens via decentralization and direct democratic institutions, the role of electoral rules has thus far been rather neglected. An interesting case in point is Switzerland, which is well known for its high-quality infrastructure, extensive decentralization, and direct democracy. However, this paper argues that there is an additional and previously neglected institution that moves Swiss politicians away from client politics towards better serving public interest: Switzerland’s unique electoral institutions which effectively combine proportional elections with multi-seat majority elections. We explain how these institutions work, how they enhance the relationships between citizens and public and private entities, and we argue that they could be implemented in other countries.
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Open Access
Article
Article ID: 1154
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by Karsten Mause
J. Infras. Policy. Dev. 2019 , 3(2);    608 Views
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.
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Open Access
Article
Article ID: 1156
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by Laura Castellucci, Stefano Gorini
J. Infras. Policy. Dev. 2019 , 3(2);    450 Views
Abstract We investigate the impact on intertemporal distribution caused by a change of policy from tax to deficit financing of public investment, using a simple theoretical framework which combines the one-period McGuire-Olson economy with the conventional long-run Solow economy. This theoretical framework provides a simple way to highlight some significant interdependencies between private and public investments as well as the negative impact of taxation on aggregate productivity, and to trace some possible transmission mechanisms between deficit financing policies and the long-run path of consumption per head. The main tentative (theoretical) result is that although under fairly acceptable assumptions the likely impact of a deficit financing policy is to benefit the present at the expense of the future, under equally acceptable assumptions concerning the possibility of an excessive macro private saving–investment propensity, and/or of a significant productivity loss due to the excess burden of taxation, the adverse intertemporal distributional impact of deficit financing might become negligible, or even disappear altogether.
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Open Access
Article
Article ID: 1157
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by Alessandra Cepparulo, Giuseppe Eusepi, Luisa Giuriato
J. Infras. Policy. Dev. 2019 , 3(2);    2618 Views
Abstract Public-Private Partnerships (PPPs) are mostly presented as a means to introduce efficient procurement methods and better value for money to taxpayers. However, the complexity of the PPP mechanism, their lack of transparency, accounting rules and implicit liabilities make it often impossible to perceive the amount of public expenditure involved and the long-run impact on taxpayers, providing room for fiscal illusion, i.e., the illusion that PPPs are much less expensive than traditional public investments. This psaper, thanks to a systematic review of the literature on the EU countries experience, tries to unveil the sources of this illusion by looking at the reasons behind the PPPs’ choice, their real costs, and the sources of fiscal risks. The literature suggests that PPPs are more costly than public funding, especially when contingent liabilities are not taken into account, and are employed as mechanisms to circumvent budgetary restrictions and to spend off-balance. The paper concludes that the public sector should share more risks with private sectors by reducing the amount of guarantees, and should prevent governments from operating through a sleight of hand that deflects attention away from off-balance financing, by applying a neutral fiscal recording system.
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