Public–private partnerships vs. traditional contracts for highways

Abstract

During the last 2 decades, several countries have used Public–Private Partnerships (PPPs or P3) along with the traditional contracts for development of infrastructure. In this paper, we model the incentive structures induced by PPPs contracts and the traditional procurement contracts used for infrastructure. The model is used to predict outcomes under PPP contracts versus the traditional contracts. Predictions emanating from the model are tested using a data set of 313 national highway projects in India. The empirical analysis examines validity of a widely held belief that PPPs are better than the traditional contracts in terms of the cost and quality of infrastructure. We show that the construction costs are significantly higher for PPPs than the traditionally procured (non-PPP) highways. Besides, we compare the quality of PPPs with the non-PPP roads. Our analysis shows that the PPPs encourage life-cycle approach towards project costs. This effect is more pronounced for Toll-PPPs than for Non-toll-PPPs. Moreover, the quality of PPP roads is better than the traditional highways.