Governance structures for public infrastructure projects: Public–private management regimes, contractual forms and innovation

Abstract

The choice of appropriate governance structures for public infrastructure projects is a major challenge for governments. The extant literature provides ample theoretical support to analyse various public–private management regimes for public infrastructure service delivery, but there is little discussion on the innovation incentives of specific contractual forms and their welfare implications under different management regimes. Our research aims at providing answers to the following research questions: who should manage different tasks in public infrastructure delivery – public, private or public–private partnership (PPP)?; how should these tasks be managed to foster innovation and enhance welfare?. We explore these using a multi-period analytical model that analyses innovation incentives induced by six contractual forms under five management regimes. We derive conditions under which specific governance structures maximise welfare. Our analysis reveals that PPPs induce optimal innovation and maximise welfare if governed through revenue-sharing concessions for user-payment type services and fixed-price annuity type contracts for no-user-payment type services. The risk share of the private partner and the shadow cost of public funds strengthen the case for PPPs while transaction costs weaken it. These results generate novel insights for policymakers to design effective governance structures and set new research directions in public infrastructure governance.

Keywords:

• Infrastructure governance
• public–private partnerships (PPPs)
• management regimes
• contracts

JEL CODES:

• L33
• H44
• H54
• H57
• D86

Acknowledgements

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Disclosure statement

In accordance with Taylor & Francis policy and our ethical obligations as researchers, we are reporting that we have no financial and/or business interests in a company that may be affected by the research reported in the enclosed paper. We have disclosed those interests fully to Taylor & Francis.