The Trade-Offs of Transferring Demand Risk on Urban Transit Public–Private Partnerships

Abstract

There is a long history of ridership on urban rapid transit projects failing to meet predevelopment forecasts. This article examines the trade-offs for government associated with transferring the financial risk of ridership demand shortfalls to the private sector through public–private partnerships (PPPs). First, the article develops a theory of the way that PPPs are designed to clamp down on the causes of transit ridership shortfalls. Second, it outlines technical, planning, and financial trade-offs associated with transferring ridership demand risk to the private sector. Third, examples are presented to show how these trade-offs manifest in the most popular models of allocating ridership demand risk in PPPs. The article concludes that transit projects have particular characteristics that challenge the effective transferring of ridership demand risk to the private sector. Governments should instead focus on project procurement models that encourage risk sharing between the partners.