Public-Private Partnerships to Revamp U.S. Infrastructure

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Released: February 2011 • Discussion Paper

Related Topics: Infrastructure, Effective Government, State & Local

Authors:

Eduardo Engel • Professor of Economics, Yale University
Alexander Galetovic • Professor of Economics, Universidad de los Andes
Ronald Fischer • Professor, Industrial Engineering Department, Universidad de Chile

Public–private partnerships are often touted as a “best-of-both-worlds” alternative to public provision and privatization. But in practice, they have been dogged by contract design problems, waste, and unrealistic expectations. Governments sometimes opt for a public–private partnership, for example, because they mistakenly believe that it offers a way to finance infrastructure without adding to the public debt. In other cases, contract renegotiations have resulted in excessive costs for taxpayers or losses for private firms. This paper proposes a series of best practices that communities can undertake to ensure that public–private partnerships provide public value. These include choosing partnerships for the right reasons, relying on flexible-term Present-Value-of-Revenue (PVR) contracts, including partnerships on government balance sheets, and implementing good governance practices. Enacting these reforms will help maximize taxpayer value and reduce risks for each party involved in a public–private partnership.