Public-private partnerships for transport infrastructure: some efficiency risks

Ryan, Matthew and Menezes, Flávio (2014) Public-private partnerships for transport infrastructure: some efficiency risks. New Zealand Economic Papers, 1-20. doi:10.1080/00779954.2014.955625

Author Ryan, Matthew
Menezes, Flávio
Title Public-private partnerships for transport infrastructure: some efficiency risks
Journal name New Zealand Economic Papers   Check publisher's open access policy
ISSN 0077-9954
Publication date 2014-09-09
Year available 2014
Sub-type Article (original research)
DOI 10.1080/00779954.2014.955625
Start page 1
End page 20
Total pages 20
Place of publication Melbourne, VIC, Australia
Publisher Routledge
Language eng
Abstract This paper models a public–private partnership (PPP) to construct a highway. It captures some of the key features of the Transmission Gully PPP. The winner of the tender recovers its costs (including capital costs) via an availability payment rather than toll revenue. While the availability payment eliminates demand risk, the winner of the tender faces cost risk: maintenance costs are only learned after construction is complete. The winning firm can make investments during the construction phase that reduce subsequent maintenance costs. As the Government faces transaction costs to replace the successful bidder, firms use debt strategically to pass on some of the cost risk to the Government. This distorts incentives to invest in maintenance cost reduction. Private financing therefore undermines some of the benefits from bundling construction and maintenance, which is often mentioned as an important advantage of PPPs.
Keyword Public-private partnership
Availability contract
Whole-of-life contracting
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes Published online 9 September 2014

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2015 Collection
School of Economics Publications
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Created: Tue, 30 Sep 2014, 03:14:41 EST by Alys Hohnen on behalf of School of Economics