Nested Nature of Institutional Context: Distinguishing General Institutional Constraints and Specific Legal Restraints

Abstract: Public-private partnerships (PPPs) are promising strategic solutions in filling the infrastructure gap. We disentangle two investment decisions: entry decision and entry mode decision. We also make a distinction between different levels of institutional environment: political structure and specific legal rules. In this paper, we focus on demand risk allocation in PPPs as a critical entry mode decision. We also study the effects of a stand-alone PPP law and institutional constraints on the government, as two different levels of institutional context, on risk allocation. Our findings suggest that PPP law is negatively associated with the propensity of transferring demand risk to private partners. Moreover, we show that not only are institutional constraints positively related to risk transfer, but they also moderate the relationship between PPP law and demand risk distribution.