When does a public–private partnership (PPP) lead to inefficient cost management? Evidence from South Korea’s urban rail system

Abstract

This paper investigates the impact of a public–private partnership (PPP) on the operational cost-efficiency of South Korea’s urban rail system. Seoul’s line 9, which is operated by a PPP, was compared with Seoul Metropolitan Rapid Transit (SMRT) which is entirely run by the public sector. Overall, no evidence was found that private operation led to clear and significant declines in costs to the public. Private shareholders, on the other hand, experienced a surprisingly high rate of return. The author explains why two characteristics defining a typical PPP—activity bundling and public–private risk-sharing—were behind this unintended outcome and makes suggestions to prevent other governments experiencing similar problems.

Keywords:

• Mass transit cost-efficiency
• public–private partnerships
• PPP
• privatization
• South Korea
• urban rail transit

Additional information

Notes on contributors

Sounman Hong

Sounman Hong is an assistant professor at Yonsei University, South Korea.