Theory and Evidence from Firms and Nations
Edited by Mehmet Ugur
Chapter 9: Innovation and regulatory outcomes: evidence from the public-private contracts for water supply in France
Many scholars advocate that competition for the market can effectively substitute for competition on the market in network industries characterized by natural monopoly characteristics (Demsetz, 1968; Posner, 1972). However, the literature also emphasizes that a lot of potential pitfalls arise when public authorities implement auctions for the award of public-private partnership (PPP) contracts in monopolistic sectors (Crocker and Masten, 1996). One of the most important problems lies in the fact that it is difficult to replace the firm winning the very first auction at the end of the contract. The transaction cost literature (Williamson, 1976; Klein, 1998) suggests that when the incumbent is in charge with the realization of specific investments, a bilateral dependency arises between the firm and the public authority. The problem lies in the fact that the value of these assets would be lost if the firm is replaced. The existence of specific assets then creates a ‘lock-in’ situation that makes it difficult for the public authority to switch to another supplier. As a consequence, the incumbent enjoys a ‘first mover’ advantage over rivals at contract renewals (Williamson, 1975). Whether this advantage is due to opportunistic behaviour or reputational bonus remains an open question.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.