Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships

The question of what should determine the boundaries between public and private firms in an advanced capitalist economy is a highly topical one. In this paper I discuss some recent theoretical thinking on this issue. I divide the paper into two parts. First, I make some general remarks about the relationship between the theoretical literature of privatization and incomplete contracting theories of the firm. Second, I use some of the ideas from this literature to develop a very preliminary model of public private partnerships. JEL Classification: D23, H1, H4 Acknowledgements This paper was given at a CMPO session of the Royal Economic Society Conference 2002 (University of Warwick) on ‘The Private Delivery of Public Services’. It is forthcoming in the Economic Journal (2003). I am grateful to the National Science Foundation through the National Bureau of Economic Research for financial support, and to Donald Franklin, Paul Grout, Rohan Pitchford, and Andrei Shleifer for helpful comments. Address for Correspondent Economics Department Littauer Center Harvard University 1875 Cambridge Street Cambridge MA 02138