How (Not) to Foster Innovations in Public Infrastructure Projects

Hoppe, Eva I. and Schmitz, Patrick W. (2019): How (Not) to Foster Innovations in Public Infrastructure Projects.

Abstract

The government wants an infrastructure-based public service to be provided. First, the infrastructure has to be built; subsequently, it has to be operated. Should the government bundle the building and operating tasks in a public-private partnership? Or should it choose traditional procurement, i.e. delegate the tasks to different firms? Each task entails unobservable investments to come up with innovations. It turns out that depending on the nature of the innovations, bundling may either stimulate or discourage investments. Moreover, we find that if renegotiation cannot be prevented, public-private partnerships may lead the government to deliberately opt for technologically inferior projects.

• Item Type: MPRA Paper
• Language: English
• Keywords: Contract theory; procurement; public-private partnerships; moral hazard; renegotiation
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out

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