The Productivity Effect of Public-Private Partnership

In the last two decades, public authorities have increasingly resorted to public-private partnership (PPP) arrangements for the delivery of public services. Under a PPP, the private contractor is in charge of building the infrastructure, as well as managing and maintaining the facility. Under traditional procurement the construction and operation phases, in turn, are separated and regulated by two different contracts. Relying on data collected from the Italian district heating industry, I empirically evaluate whether bundled forms of contractual arrangements induce differences in the technical efficiency of firms due to heterogeneous levels of capital quality. I find that a PPP contract allows a technological externality between the different phases of a project to be internalized, leading to a positive effect on total factor productivity. Specifically, a unit increase in the capital quality proxy raises the output of PPP firms by 15%.