Analyzing different quality situations within public-private partnership of infrastructure

Abstract

Due to the increasing amount of private-public partnership procurements, the pros and cons of this subject area is of great concern for economists and stakeholders. Previous studies regarding the rationale of this type of procurement argued on the externalities of private-public partnership. Most arguments were upon the negative externalities, which can reduce the private-public partnership’s value. In this thesis, externalities in private-public partnership for infrastructure projects are explained by using operation and maintenance, and user’s quality in more detail and compared in different situations. This study carries that with having positively correlated qualities, the private sector will have maximum profit and by having uncorrelated qualities, and the private sector will have more profit compared to negatively correlated qualities. Furthermore the ways to design optimal contract for public sector, which gives the incentive to the private sector to enhance quality and reduce life-cycle costs, is analyzed.