Transaction-Cost Approach to the Comparative Analysis of User-Pay and Government-Pay Public-Private Partnership Systems

Government-pay and user-pay public-private partnership (P3) systems have been employed as the main conduits for channelling private capital to finance the provision of public services throughout the world. In efficiency terms, they are suited to different types of projects. This paper develops a model to illuminate the condition under which one route would perform better than the other. If both of them are instituted into law, governance alignment should emerge in the long run. However, in Taiwan government-pay P3 systems are not a lawful route, forcing the government to employ user-pay P3 systems regardless of project types. This gives researchers an unusual opportunity to examine what would happen as a result of an inappropriate choice of P3 models. This paper makes a theoretical innovation in the identification of a conflict of interest indicator as an attribute for differentiating the relative efficacy of two types of P3 systems. This result sheds light on the way value for money assessment should be conducted for user-pay P3 projects.