Strong versus Weak Vertical Integration: Contractual Choice and PPPs in the United States

Abstract

Public-Private-Partnerships are long-term, relational contracts between a public-sector sponsor and a private partner to deliver infrastructure projects across a range of economic sectors. Efficiency gains may derive from risk transfer and bundling different tasks within a single contract. We study the factors explaining the scope of bundling. We focus on the choice between weak vertical integration, which includes operational tasks alone or construction tasks alone, versus strong vertical integration, which involves the combination of operational and construction tasks. We utilize a new data set that includes 553 PPPs concluded in the U.S. between 1985 and 2013.