Search

Infrastructure public-private partnerships (“P3s”) have gained considerable recognition as useful policy tools for state and local governments to deliver critically needed infrastructure projects. The objective of this study is to empirically test one of the claims often made regarding states’ motivations for employing this procurement mechanism: P3s can help overcome fiscal constraints on state infrastructure investment. In addition, this study empirically analyzes how state P3 enabling legislation affects the behavior of both the public and private sectors. A regular logit model and a fixed effects logit panel model are employed to test the hypothesis that states with more severe fiscal constraints are more likely to seek P3s for highway infrastructure construction and finance. After controlling for such factors as state economic condition, legislative political affiliation, and highway travel demand, the empirical results indicate that states’ fiscal constraints are not associated with the propensity to use highway P3 projects.

Public-private partnerships (P3s) typically rely on long-term contracts between participants. When conditions arise that fall outside the expectations embodied in the contract, one party may seek to renegotiate the contract terms. Globally, the frequency of P3 contract renegotiations has been sufficient to raise questions regarding why these events occur and what their consequences are for the projects and society. The literature highlights four relevant causes behind renegotiation occurrences: unexpected exogenous changes, the complexity of the contractual relationship, winner's curse and rent seeking behavior. This study examines the US experience with highway P3 renegotiations, including four types of event: contract modifications, defaults, bankruptcies and buyouts. While the US highway P3 market has grown gradually, failure to understand renegotiations and their potential consequences may dampen the market and adversely affect national infrastructure investment efforts. The analysis finds that insufficient evidence exists to disentangle the drivers of renegotiation in the US, although exogenous changes and contractual relationship complexity appear to be paramount. The analysis highlights the distinct political and institutional environment that shapes highway P3 renegotiations in the US, suggesting the need for continuing and sensible analysis to effectively manage the undesirable consequences of renegotiations.