Can public-private partnerships (PPPs) improve the environmental performance of urban sewage treatment?

Abstract

Insufficient sewage treatment facility is one important reason for wastewater entering and affecting aquatic ecosystems. The PPP mode, serving as one of the fastest-growing mechanisms for public service provision in recent decades, is considered to be an effective way to alleviate the pressure of funding shortages and to improve the efficiency of sewage treatment. However, the performance of PPPs has been questioned, especially the service quality given the inherent nature of the private sectors' pursuit of maximizing economic profit and the shortcoming of incomplete contracts. This paper evaluates the service quality, namely the environmental performance, of the PPP mode in China's urban sewage treatment sector. Based on detailed firm-level data in Jiangsu Province, China, we find that the PPP mode has improved the pollutant treatment performance, and increased operation cost and promoted sewage treatment efficiency serve as the main mechanism for the improvement of environmental performance. The research findings could help both developed and developing countries to apply and design a public-private partnerships mechanism.