NCPA - National Center for Policy Analysis

The Limitations of Public-Private Partnerships

January 13, 2011

Government at all levels in the United States has been slowly moving away from grand central planning schemes and toward markets.  One result has been the rise of public-private partnerships (PPPs), says Marc Scribner, a land-use and transportation policy analyst with the Competitive Enterprise Institute.

Proponents of these arrangements argue that many of the information and transaction cost problems inherent in government institutions can be mitigated by sharing construction, maintenance and operational responsibilities with profit-motivated private firms.  Unfortunately, PPPs can also drive rent-seeking behavior, and create significant risk of improper collusion between political actors and politically preferred firms and industries.

In his study, Scribner examines PPPs and their relation to surface transportation and real estate development, two areas where their use has grown substantially in recent years.  These sectors also tend to be intertwined, with investment in transportation infrastructure often coinciding with real estate development or redevelopment.

But these sectors are hardly similar:

  • One has long been dominated by government monopolies and the other has been largely free of political forces.
  • In the case of surface transportation infrastructure, innovative new private-sector financing, management and ownership regimes have much to offer in terms of minimizing taxpayer exposure to risk, capturing user revenues and creating an efficient transport network.
  • In contrast, government's recently expanded role in real estate development has increased taxpayer exposure to risk, socialized costs, and concentrated the benefits into the hands of select private developers and special interests.

The popularity of PPPs should not blind policymakers to the fact that different sectors suffer from markedly different problems, says Scribner.

Source: Marc Scribner, "The Limitations of Public-Private Partnerships," Competitive Enterprise Institute, January 11, 2011.

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