Public-Private Partnerships : Task Interdependence and Contractibility

We examine the proper scope of public-private partnerships in the context of a project consisting of two tasks, building and operation of a facility. We investigate the optimal arrangement regarding bundling versus unbundling and private ownership versus public ownership. Like Bennett and Iossa (2006), we assume that the innovative activity in the building stage has impacts on, among other things, the subsequent operation cost; the novelty is that we consider a more kind of task interdependence. Another novelty is that we allow the innovative activity in the second, operation stage to become contractible once the innocative activity in the building stage is undertaken