The Study On Organizational Form In Public-Private Partnership Based On Contract Theory

As a useful way to provide public infrastructures and service，public-privatepartnership (PPP) is used more and more frequently. Under PPP, the governmentagency enters a long-term contractual arrangement with a private supplier for thedelivery of some public services. In this paper we analyze the optimal organizationstructure of PPP, based on the contract theory. We notice the characteristics of PPP,which is long-term and multi-tasks, take examples from foreign research evaluationmodels, discuss contract design of PPP’s organization structure in the framework ofincomplete contracts, through both theoretical research and model analysis. In thispaper, we explore how the externalities of public goods, the payment mechanisms, theownership and the capture issue affect the investment incentives of private firms.We conclude that in the incomplete contracts environment, when there is apositive externality across construction stage and operation stage, bundling is alwaysoptimal in PPP. Cost-plus contracts are better if efforts can easily reduce the costs buthardly affect the qualities. User-charge contracts are better if efforts can easilyenhance the qualities but hardly raise the costs. When there is a negative externality, ifthe service level affects the demand of the end-user greatly, bundling and user-chargecontracts should be chosen. Considering the ownership of the assets and residualvalue, if the asset specificity is small, the ownership should be given to private sectorduring the period of the contract. When there is the possibility that government beencaptured, low incentive policy should choose to avoid the collusion between theGovernment and private sector.