Public-private partnerships and government spending limits

Eric Maskin*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    96 Scopus citations

    Abstract

    We consider public-private partnerships, in which a public official selects a project that is then developed and operated by a private contractor. We derive optimal public accounting rules when the official's choice among projects is biased by ideology or social ties or because of pandering to special interests. We give particular emphasis to how the rules should constrain the official's incentive to understate the costs of her pet projects. In the basic model, we show that the optimal accounting rule takes the form of a budget cap, with a project's expected cost modified to reflect the official's distortionary incentives. If the project can be partially financed privately, then "fixed-price" contracts can serve to curb political misbehavior by "securitizing" public sector liabilities. We also consider the possibility that development and operations are each handled by different contractors. Such "unbundling" deprives public accountants of forward information about future costs, but can prevent the official from funneling hidden future rents to contractors.

    Original languageEnglish (US)
    Pages (from-to)412-420
    Number of pages9
    JournalInternational Journal of Industrial Organization
    Volume26
    Issue number2
    DOIs
    StatePublished - Mar 2008

    Keywords

    • Budget caps
    • Public accounting
    • Public-private partnerships
    • Unbundling

    ASJC Scopus subject areas

    • Industrial relations
    • Aerospace Engineering
    • Economics and Econometrics
    • Economics, Econometrics and Finance (miscellaneous)
    • Strategy and Management
    • Industrial and Manufacturing Engineering

    Fingerprint Dive into the research topics of 'Public-private partnerships and government spending limits'. Together they form a unique fingerprint.

    Cite this