Private participation in infrastructure project and its impact on the project cost

- The relationship between private share and project cost of PPP (public-private partnership) takes the form of a U-shape.
- Only under certain conditions, PPP can be more efficient than pure-public and pure-private provisions.
- The private shares in China's infrastructure PPPs are excessive.
- Compared to other PPP types BOT (build, operate, and transfer) is less efficient in China.

While public-private partnerships (PPPs) have become an increasingly popular approach in both developed and developing countries, very little is known about whether or not PPPs are more efficient than pure-public or pure-private modes. Building on some recent work studying PPP issues this paper improves the understanding of public-private capital structures, provides some theoretical considerations as well as empirical evidence that private participation affects PPPs cost through the knowledge-transfer effect and the cost-increase effect, and demonstrates a U-shaped relationship between the project costs and private shares. Empirical analysis also finds that the private shares in China's infrastructure PPPs are excessive, and BOT (build, operate, and transfer) projects, compared to other PPP types, are not efficient in China.