Public-Private Partnerships, Dividing Operational Stage, and Optimal Governance Structures

Abstract

Public-Private Partnerships (PPP) include various governance structures which distribute tasks and ownership of facility differently. Many earlier theoretical studies using the incomplete contracts theory assume two tasks, building and operation, for the projects of public services. This may be too simple, however, to consider complicated projects such as prisons. Critics argue that those studies could not fully explain the reality. In addition, Those models are not suitable for comparing different PPP approaches such as Private Finance Initiative (PFI) and private management. The present paper divides the task of operation into two (maintenance and security). This enables us to compare four relevant governance structures in a single framework, and to suggest the conditions for successful PPP prison projects. The main findings are that the tasks of maintenance and security should be conducted by different parties (private consortium and civil servant) under certain conditions, while unbundling construction and operation stages is desirable in other cases.