Public-Private Partnerships, Asymmetric Information, and Incomplete Contracts

Patrick W. Schmitz

No 20699, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop an incomplete-contracting model in which the government engages a private contractor to provide a public good. Over time, adaptations of the good to changing circumstances may become desirable. The contractor privately learns the costs of implementing these adaptations. We compare two organizational forms. In a public-private partnership, the government actively participates in project management and, by incurring information-gathering costs, may ascertain the contractor's adaptation costs. Under traditional procurement, the government lacks direct involvement in project management, preventing it from ascertaining the adaptation costs. We show that the government's potentially enhanced access to the contractor's information in a public-private partnership can either support or undermine the case for such partnerships.

JEL-codes: D23 D86 H41 H57 L33 (search for similar items in EconPapers)
Date: 2025-10
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