When Does a Public-Private Partnership (PPP) Lead to Inefficient Cost Management?: Evidence from the Korean Urban Rail Transit System
Public Money and Management, Forthcoming
26 Pages Posted: 3 Feb 2015
Date Written: February 2, 2015
Abstract
We examine whether a public-private partnership (PPP) improved the operational cost efficiency of Korea’s urban rail system. Results suggest that private participation did not reduce service operation costs. We explain how the absent cost advantage may be connected to the two characteristics defining a typical PPP: activity bundling and public-private risk sharing. We argue that if negative externalities exist between the project company and shareholders, public-private risk sharing may weaken the concessionaire’s cost management incentives.
Keywords: Public Private Partnership, PPP, privatization, collaborative governance, urban rail transit, transportation policy
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