Building and Managing Facilities for Public Services

We model public-private partnershios in building and managing facilities for the provision of public services. In particular,we analyze both the desirability of bundling the building and management operations, and the optimal allocation of ownership between the public sector and private firms. When a positive externality exists across stages of production, bundling is optimal;but unbundling may be preferred when the externality is negative.Whether public ownership is preferred to private ownership depends on the extent and sign of the externality, the market value of the facility and the effect of the firms' investments on social benefits. The main advantage of the public ownership is that it works as a commitment device for the government to share social benefits with the investor.