public private parternships in a changing environment · 2017. 6. 8. · public/regulated monopoly...
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Public Private Parternships
in a Changing Environment
Emmanuelle AuriolToulouse School of Economics
World BankJune 9 2011
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The big question
Where is the optimal
frontier between the
State and the
market?
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Government for what ?
Essential public goods (army, police, justice)
Externalities (education, health care, tobacco, oil)
Public utilities (electricity, water, gas, telecommunication, post, railroad,)
Infrastructures (bridge, road, dam...)
Macro-economic policy (budgetary and monetary)
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Providing public utilities services
Public => Post
Public-Private Partnership => water, electricity
Privatization => mobile telecommunication
What is optimal ?
What are the trade-offs?
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The choice between public and private: an
ideological question ?
« Oui, désormais, c’est le rôle de l’Etat d’assurer lui-même la
mise en valeur des grandes sources d’énergies: charbon,
électricité, pétrole, ainsi que les principaux moyens de
transport… C’est son rôle de disposer du crédit, afin de diriger
l’épargne vers les vastes investissements... »
Le Général de Gaulle, Assemblée Constituante, mars 1945.
Not very different in the US!
1930: Federal Power Commission; 1931: Food and Drug Administration; 1934: Federal
Communications Commission; 1936: Federal Maritime Commission; 1937: Agricultural
Marketing Service, Department of Agriculture; 1938: Civil Aeronautics Board
=> In 1975 ¼ of the US GNP was produced in regulated industries.
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Why PPPs now and not in the fifties?
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The end of the cold war and
major innovations
+
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Creation of integrated markets
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Emergence of the global company:
merger and acquisition
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New context, new rules…
Deregulation:
Public/regulated monopoly => regulated oligopoly
and/or antitrust law (e.g. EU)
Privatization:
Transition countries: efficiency
Structural adjustment programs: between 1980 and
1996 developing countries have reduced by half
public ownership (from 16% to 8% of GDP).
Rich countries: controlling inflation and government
size.
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Privatizations
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PPPs in infrastructures
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Internal benefits of privatization
Firms focus on profit (no patronage, no
macro-economic goals such as employment
policy or land planning).
Hard budget constraint (no taxpayers to bail
out the firm in case of deficit)
=> Costs are reduced (diminution of the work force
and of moral hazard problems)
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External benefits
Supply of private capital
=> New investments can be realized in time of
budgetary crisis !
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Costs of privatization
Prices rise
Cream skimming
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Different types of PPPs
Concessions BOT (BOOT, DBOT, DBOOT): private investissement in infrastructures, long period (35 to 99
years)
Affermage/leasing, French concession: public
infrastructure, exploitation and some investissements are private,
shorter period (10 to 18 years)
Management contract: service externalisation, short
period (3 to 8 years).
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The first PPPs: industrial revolution and
government budget constraint
Turnpike roads in the UK 1660 (concessions)
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concessions-BOT today
Eurotunnel BOOT of 65 years
Autoroute 69 (Southern Indiana Toll)
concession-BOT of 75 years
International airport of Islamabad, Pakistan
Nhon Trach bridge, Saigon
TGV Paris-Bordeaux concession 35 years
Viet Nam: Phu My 2.2 Power Project
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Services: outsourcing and management
contract
Water, waste management, public
transportation.
Education: schools, teaching institutions
Health care: private hospitals, doctors
Post office kiosks, taxi-bus
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Some economic analysis…
Gouvernement has many missions:
Max WG(public good, externalities, infrastructure, public utilities, redis,…)
slc PubGood + Edu+ Health + Infra+ PubUtil + Redis < BG (l)
=> l is the opportunity cost of public funds (short run).
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Public or private?
New infrastructure => C(Q)= K+bQ
Uncertainty: IID G(b), g(b)
Firm profit => P(Q)= P(Q)Q- C(Q) + t
Consumer Surplus => Sc(Q)=S(Q)-P(Q)Q
Government goal: W= P+ Sc- (1+ l)t
,b b b
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Private: t=0 and laissez-faire
The firm maximizes P(Q)= P(Q)Q - bQ- K
=> Qm(b)
=> EbWm= E[S(Q
m) – bQ
m] -K
( ) 1
( )
P Q
P Q
b
-=
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Public: and regulation
Max W = S(Q)- bQ- K - lt
slc (IR) P(b)
(IC)
=> Qr(b)
0
( ) ( )Qb bP = -
0t
0 rPl b= =
( )
1 ( )( ) ( )
Gr m m
gP P P
l bb b
l bl +
+ =
( )( )
1 ( )( ) 1
( ) 1
G
gP Q
P Q
l bb
l b l
l
++
-=
+
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Production schemes
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Optimal Privatization policy
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Demand is linear P(Q)= a-bQ and cost are uniformly distributed.
=> Optimal privatization policies differ in rich and in poor countries.
Numerical computations of l̂
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Public Private Partnership
( ) ( )Mb bP P
( ) ( )Qb bP = -
We can do better than laissez-faire by
contracting with the private firm.
Max W = S(Q)- bQ- K - lt
slc (PC)
(IC)
There is b0
so that for all b< b0
it is optimal to
contract ex-post with the firm, laisse-faire is
opimal otherwise.
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Optimal contract: only efficient firms get a
profit bonus
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Proposition
Assume l is not too high and let F be the
franchise fee (or subsidy) the private firm
pays/asks to get the market. Private provision
dominates public provision if and only if:
( )mF b P
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Optimal choice of outsourcing
In rich countries contracting out to the private sector
is efficient in high technology industries or in
unprofitable segments of public utilities ( ).
It is also optimal when the franchise fee F is large
enough.
In poor countries, outsourcing is efficient each time it
allows the creation of a service or the financing of an
infrastructure that would not exist otherwise.
( ) 0bP <
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There is an optimal size for the
government…
…which depends on macro-economic conditions