Governance Misalignment and Its Consequences in PPP Procurement

Abstract

Build-Operate-Transfer (BOT) and Private Finance Initiative (PFI) have been employed as the main conduits for channelling private capital to finance the provision of public services throughout the world. In efficiency terms, they are suited to different types of projects. Drawing on Williamson¡¦s three-stage transaction cost framework, this research develops a model to illuminate the condition under which one route would perform better than the other. If both of them are instituted into law, governance alignment should emerge in the choice between them in the long run. However, in Taiwan, PFI is not a lawful route yet, forcing the government to stick with BOT regardless of project types. This gives researchers an unusual opportunity to examine what would happen in the event of governance misalignment. This research makes a theoretical innovation in the identification of ¡§conflict of interest indicator¡¨ as an attribute for differentiating the relative efficacy of BOT and PFI. This result can shed light on the way private finance reform should be taken forward.