Saturday, December 20, 2014

What Makes Public-Private Partnerships Work? An Economic Analysis

Jean Bensaid and Frederic Marty ask What Makes Public-Private Partnerships Work? An Economic Analysis.

ABSTRACT: Public-private partnerships are long-term, global, administrative contracts by which a public authority entrusts a private contractor with some or all of the missions of design, construction, funding, operation and maintenance of an infrastructure or the provision of a public service. The private contractor recovers its initial investment and collects revenue for the service provided by means of tolls paid by users (depending on the traffic) or rent paid by the public authority (depending on the availability of the required service and the satisfaction of criteria of quality and performance).

Criticized for their cost, rigidity and lack of transparency, condemned on the basis of a number of failures or difficulties in their implementation, public-private partnerships are nevertheless an appropriate instrument for the realization of certain projects and for the efficient exploitation of public assets and infrastructures. This Prisme presents  a dispassionate analysis of these contracts, highlighting the economic and financial parameters that can lead public authorities to choose this solution within the context of the search for transparency and the need to make efficient use of public moneys.

Private funding may prove to be indispensable, given the constraints currently imposed on public finances, to meet the needs for infrastructure investment. Likewise, the public-private partnership may create an efficient incentive framework to protect the public authority from spiralling costs or delays and to guarantee a service of quality throughout the duration of the contract.

Having said that, these contracts are no magic solution that can be applied to every project or in every situation. This Prisme explains how far and under what conditions the public-private partnership can fulfil its promise. It places particular emphasis on the financial dimension, which is the cornerstone of these contracts in terms of both efficiency and budgetary sustainability. And lastly, it examines the changes undergone by this model, especially those related to funding conditions.

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