Public-Private Partnership Contractual Design: A Computational Model of the Moral Hazard with Lotteries

Fernandez, Rodrigo Nobre; Saulo, Helton; Carraro, André; Tourrucôo, Fabricio; Hillbrecht, Ronald Otto

doi:10.1007/s11115-016-0359-x

Cited by 6 publications

(7 citation statements)

References 8 publications

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“…Second, the private partner has more information about the project's internal and external risks (De Palma et al, 2009). This may lead the agent to act opportunistically by deliberately misrepresenting the risks and the measures required to mitigate them (Liu et al, 2016;Fernandez et al, 2018). This is referred to as a 'moral hazard' (Shrestha & Martek, 2015).…”

Section: Hypothesesmentioning

confidence: 99%

“…Moreover, a certain degree of contract flexibility may also allow incorporating possible contract changes (Demirel et al, 2017). This can reduce the possibility of moral hazards, resulting in less claims that would otherwise have led to additional costs (Fernandez et al, 2018). Second, however, according to principal-agent theory, contract incompleteness requires monitoring of the agent's behaviour, increasing the public partner's information about the agent's competences, skills, and performance.…”

Section: Hypothesesmentioning

confidence: 99%

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Do public–private partnerships achieve better time and cost performance than regular contracts?

Verweij

Meerkerk

2020

Public Money & Management

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Infrastructure development with public-private partnership (PPP) contracts has been claimed to lead to better performance compared to regular contracts. However, the empirical evidence for this claim is weak. The authors assessed the difference in the actual performance of Dutch infrastructure PPP projects (design-build-finance-maintain: DBFM) compared to regularly procured projects (design-and-construct: D&C). DBFM projects demonstrated significantly better cost performance. IMPACT Public-private partnerships (PPPs) have been widely used for the development and management of transport infrastructure, such as highways, railways, and waterways. However, hard evidence that PPPs perform better than regularly procured projects is lacking. Existing evidence tends to rely on anecdotal and perceptual data. This paper provides policymakers and managers with real information about the actual performance and benefits of PPPs.

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Section: Hypothesesmentioning

confidence: 99%

Section: Hypothesesmentioning

confidence: 99%

Do public–private partnerships achieve better time and cost performance than regular contracts?

Verweij

Meerkerk

2020

Public Money & Management

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“…About 25%, like Broadbent et al (2008), Khadaroo (2008) and Shaoul (2005), use “critical theory”. Some 15%, including Fernandez et al (2018) and Pongsiri (2004), use “agency theory”, which concerns problems caused by asymmetric information between public and private parties. Around 12% use “legitimacy theory”, which looks mainly at how government and others legitimise the use of PPP/PFI.…”

Section: Analysis Of Resultsmentioning

confidence: 99%

“…Public management negotiates and implements PPP/PFI contracts within a commercial context (Lonsdale and Watson, 2007) characterised by supplier opportunism (Krause, 2014). This requires a relationship management approach (Chiles and McMackin, 1996) together with clear consequences for inappropriate behaviours to reduce the moral hazard (Fernandez et al , 2018). According to Lonsdale and Watson (2007), the loosening of RM is likely to be exploited by private partner for additional gain.…”

Section: Literature Analysis: Research Agendamentioning

confidence: 99%

Risk allocation, transfer and management in public–private partnership and private finance initiatives: a systematic literature review

Tallaki

Bracci

2021

IJPSM

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PurposeThis paper examines risk and risk management in public–private partnership and private finance initiatives (PPP/PFI). Despite growing interest in PPP/PFI, there are knowledge gaps in the literature. The authors’ aim is to analyse these knowledge gaps and define emerging themes to guide future research agendas.Design/methodology/approachThe authors conduct a systematic literature review from 1990 to 2018 using the Scopus database.FindingsThe authors define six emerging themes: risk definition and types of risks; value for money (VFM) and risk; risk sharing, allocation and transfer; financial risk; contractualisation and renegotiation of risk; and risk management and governance. They proposed a conceptualisation of potential development of PPP/PFI research through the three phases of risk management cycle, i.e. prospective, real time and retrospective. This paper revealed some new aspects that could help to analyse better risk and risk management in PPP/PFI to reach value for money (VFM) and to exploit the potential of PPP/PFI.Originality/valueDespite the increasing attention to PPP/PFI, further researches are required in relation to operational and post-operational risk studies, risk management and control, the role of trust. The authors’ analysis underlines the difficulties in how risk is perceived and how to ascertain VFM. In addition, the authors highlight how the increase of contract renegotiation is changing the provisions with reference to risk assignment creating market distortion. Risk should be managed as a cycle; PPP/PFI would benefit by engaging more with the risk management literature.

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“…As a puzzle making up the formal institution in PPP projects, a contract is inevitably incomplete because of high transaction cost, bounded rationality, asymmetric information, and signalling trust [28]. Strategies used to reduce the negative implication of an incomplete contract in PPP projects include changing the form of the contract by a lottery model [29], optimizing the contract by the martingale methods [30], and designing a governmental compensation contract based on game theory [31]. Additionally, some studies in the field of informal institution in PPP projects examined mutual trust [32,33], working relationship [34,35], ethical partnership [36], and social responsibility [37].…”

Section: Behaviours Among Stakeholders In Ppp Projectsmentioning

confidence: 99%

Credit Default of Local Public Sectors in Chinese Government‐Pay PPP Projects: Evidence from Ecological Construction

Yang

Song

Xing

2019

Advances in Civil Engineering

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Credit is regarded as a key factor to maintain the sustainability of cooperation between public authorities and social capitals in Government-Pay Public-Private Partnership (PPP) projects. The credit default of local public sectors has become a formidable force to cause termination in several cases. The study aims to explore the critical conditions and main logics behind opportunistic behaviours through literature analysis. In this research, political performance, fiscal illusion, subjective willingness, and objective limitation are identified as four certain conditions. Additionally, the crisp-set Qualitative Comparative Analysis (csQCA) method is applied to determine the connections between conditions and the credit default in the Chinese Government-Pay PPP projects according to 15 cases from the field of ecological construction. Consequently, two combinations with complete sufficiency leading to severe extent of credit default are categorized. The configuration of political performance and fiscal illusion is dominant, thereby causing severe extent of credit default in the preimplementation link. Correspondingly, the configuration of subjective willingness, objective limitation, and nonpolitical performance is crucial in the implementation and postimplementation links. Moreover, fiscal illusion alone could be totally sufficient to lead to a termination. This research not only enriches the theoretical system on credit default of public authorities in Government-Pay PPP projects but also provides reference for all participants to forecast the potential risks especially the credit default in PPP projects.

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Public-Private Partnership Contractual Design: A Computational Model of the Moral Hazard with Lotteries

Cited by 6 publications

References 8 publications

Do public–private partnerships achieve better time and cost performance than regular contracts?

Do public–private partnerships achieve better time and cost performance than regular contracts?

Risk allocation, transfer and management in public–private partnership and private finance initiatives: a systematic literature review

Credit Default of Local Public Sectors in Chinese Government‐Pay PPP Projects: Evidence from Ecological Construction

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