Working paper 01/040 - Abstract

What Should the State Buy?

Andreas Bentz*, Maija Halonen and Paul Grout

*Dartmouth College

This paper is concerned with what the state buys and in particular the decision to shift from conventional government purchase and ownership of assets toward public-private partnerships, i.e. purchase of final services, leaving the private sector supplier to design, build and own the assets. The approach emphasises the information and contractual nature of the problem, rather than residual control. Buying services rather than assets creates different incentive structures. The central theme of the paper is how these incentives encourage efficient service delivery. We identify when the government will buy services rather than assets and amongst other results we find that the government will strictly wish to buy services when costs of delivery and build are low. This suggests that certain cross section studies of public-private partnerships versus more conventional service provision may be subject to a sample selection bias.

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