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U.S. highway public private partnerships: Are they more expensive or efficient than the traditional model?

Nobuhiko Daito (School of Public Policy, George Mason University, Arlington, VA, USA)
Jonathan L. Gifford (School of Public Policy, George Mason University, Arlington, VA, USA)

Managerial Finance

ISSN: 0307-4358

Publication date: 7 November 2014

Abstract

Purpose

The use of public-private partnerships (P3s) for infrastructure delivery, particularly for highway projects, has been increasing in the USA. The purpose of this paper is to empirically evaluate the difference of P3s and non-P3 highway projects, in terms of their costs and efficiency.

Design/methodology/approach

An empirical model of highway construction costs was estimated using a linear regression model that explicitly accounts for the cost differential between the contracts. The differences between efficiencies was also evaluated through a two-stage analysis, where projects’-specific technical efficiencies were first estimated using stochastic frontier analysis and data envelopment analysis, and then the difference in technical efficiencies between the two groups were evaluated through non-parametric tests of means.

Findings

Controlling for various project characteristics, the P3 highway projects in the USA showed higher initial costs than non-P3 projects. However, the efficiency scores showed no significant difference between the two groups. This inconsistency between initial costs and technical efficiency scores suggests the complexity involved in P3 projects, which are not captured in the efficiency analysis.

Research limitations/implications

Limited availability of P3 project data due to their immaturity (in cases of P3 projects that include operation and management) and their complex engineering specifications may have caused biased results. Importantly, the study analyzed project costs as of financial close; post-financial close variations, such as change orders during construction, cost/schedule overruns, and renegotiation of contract terms, are beyond the scope of the analysis in this study.

Originality/value

The present study contributes to the literature as one of the earliest empirical analyses of the performance of highway P3s in the USA. Also, this is one of the first studies to employ frontier analysis methods that focus on the efficiency of highway project delivery.

Keywords

Acknowledgements

JEL Classifications — R4, L9

The authors would like to extend their gratitude to the publication Public Works Financing for granting access to its P3 project data set. Earlier versions of this paper have been presented at the Innovation in Public Finance Conference in Milan, Italy (2013) and at the 17th World Meeting and Exhibition of the International Road Federation in Riyadh, Saudi Arabia (2013). The authors are extremely grateful for the useful comments from anonymous reviewers of Managerial Finance, as well as for the comments received at the aforementioned conferences. The research behind this paper is financially supported by George Mason University Center for Transportation Public-Private Partnership Policy. The paper reflects the views of the authors and does not represent any organizations. Any errors of the paper are fully the responsibility of the authors.

Citation

Daito, N. and Gifford, J.L. (2014), "U.S. highway public private partnerships: Are they more expensive or efficient than the traditional model?", Managerial Finance, Vol. 40 No. 11, pp. 1131-1151. https://doi.org/10.1108/MF-03-2014-0072

Publisher

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Emerald Group Publishing Limited

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