Case Study (Public-Private Partnerships)

This course will help students deepen their understanding of Public-Private Partnerships (PPPs) as a framework for public services provision—such as economic, social and institutional infrastructures—essential to the smooth functioning of society and to people’s well-being over the long term. Furthermore, mobilization of private funds for public goods provision is discussed in light of the emerging practice of impact investing. As a practical training course with active learning approach, students are required to work in teams under the guidance of the instructor and their deliverables will be reviewed by and submitted to external “clients”† as if the students run a real-world consultancy project. In this way, the course aims to prepare students for future positions engaged in innovative public services provision in both the public and private sectors.
The key motivation for traditional PPPs is to seek efficiency gains and innovations as well as to fill public-sector funding gaps through private sector participation. Efficiency gains and innovations are expected to enhance public-sector productivity as a whole and to improve the quality of public services. Recognizing such potential benefits, we have seen an increasing interest in PPPs over the past decades.
The core task of structuring a PPP project is to reconcile the interests of various stakeholders in the private and public sectors. These stakeholders include investors, lenders, contractors, social entrepreneurs, non-governmental organizations (NGOs), and beneficiaries on the private-sector side, and government and other public entities on the public-sector side.
PPP projects are traditionally considered along two axes—return and risk—from the perspectives of private financiers while potential beneficiaries in the private and public sectors expect positive non-financial outcomes. The emerging practice of impact investing, however, reminds us of those positive non-financial outcomes—positive social and environmental impacts in particular—as a third axis even from the perspectives of private financiers.
Impact investing represents a paradigm shift in the provision of public goods by adding impact as a third dimension to investment considerations alongside risk and return factors. This shift can be interpreted as internalization of those unintended outcomes—both positive and negative—that are considered as “externalities” into investment decision to unlock the potential for investments to contribute to ensuring positive non-financial outcomes for a broader range of beneficiaries.
Challenges remain. PPPs are not immune to moral hazard due to the nature of public services provision, and in reality very complex and can be costly. Risk allocations are challenging because of information asymmetries and inherent uncertainties over the long term. Difficulties also arise from the different attitudes of such stakeholders as investors, lenders, government entities, and potential beneficiaries. PPPs are equipped with commercial contractual structure and operational modalities, but at the same time are extremely political due to their social implications entailed in public services provision.
In the current global context, the scope of discussion will be connected occasionally with the implications of the post-pandemic challenges for PPPs to add real-world relevance to student learning.
† External clients to give problem sets with a given goal and to evaluate the quality of deliverables are: GR Japan; and Japan International Cooperation Agency (JICA)’s Private Sector Partnership and Finance Department.