Transaction Hazards and Governance Mechanisms in Public-Private Partnerships: A Comparative Study of Two Cases

Abstract

Public–private partnerships (PPPs), although widely used to build infrastructure and deliver public services around the world, have confronted transaction hazards of uncertainty, asset specificity, information asymmetry, and contract incompleteness. Drawing from contracting theories, this article takes a holistic approach to identifying eight governance mechanisms to address transaction hazards: cognition and flexibility for uncertainty, safeguards and credibility for asset specificity, transparency and competition for information asymmetry, and reputation and trust for contract incompleteness. We then conduct a comparative study of two PPP power projects, one successful in China and the other failed in India, to illustrate how governance mechanisms function to address those transaction hazards. Among eight governance mechanisms, flexibility, credibility, and competition are especially critical to determine the success or failure of PPP projects.

Keywords:

• comparative case study
• governance
• power project
• public–private partnerships

Note

Notes

1 Capturing positive externalities denotes that PPPs encourage contractors to participate in operation and maintenance (O&M) considerations during design and construction period so as to reduce O&M costs. Minimizing negative externalities indicates that PPPs discourage contractors from cutting corners in construction, because they have to run the facilities for a long period and do not want to bear the burden of increasing costs of maintenance and repair.

Additional information

Funding

National Natural Science Foundation of China [Grant Number: 71702132, 71774023, and 71734004]. National Social Science Fund of China [Grant Number: 16BGL186].

Notes on contributors

Wei Xiong

Wei Xiong is an assistant professor at the School of Economics & Management, Tongji University, Shanghai, China.

Bin Chen

Bin Chen is an associate professor at the Austin W. Marxe School of Public and International Affairs, Baruch College & a doctoral faculty Graduate Center, The City University of New York, New York, NY, USA; and an adjunct professor at the Institute for Global Public Policy, Fudan University, Shanghai, China.

Huanming Wang

Huanming Wang is an associate professor in the Department of Public Administration, Dalian University of Technology, Dalian, China.

Dajian Zhu

Dajian Zhu is a professor at the School of Economics & Management, Tongji University, Shanghai, China.