Network Information and Prices in Public-Private Partnerships Agreements: Evidence from the French Water Industry

Abstract

The literature focusing on public-private partnerships agreements points out the existence of information asymmetries that may affect the performance of these contracts. Indeed the private firm operating the service generally detain better information about the costs of the service than the public authority and may exploit this advantage to increase its profits unduly. However, empirical works trying to underline the impact of informational asymmetries on the performance of public-private partnerships schemes are still scarce. Focusing on a sample of 5000 French municipalities observed in 2004, we show that the water price increases as information on the network improves when the service is managed directly by the municipality. However such a link is not observed when the service is delegated to privates firms. This result may indicate that the costs incurred by municipalities to discover information on their network are counterbalanced by the gain they obtain from the decrease in the informational advantage of the private firm, leaving the water price unchanged in delegated services.