Public-private Partnerships and Opportunism: New Empirical Evidence in the French Water Industry

Freddy Huet (University of Nice)
Simon Porcher (IAE of Paris)

Abstract: one of the most important pitfalls generally associated with public-private partnerships schemes conducted in natural monopoly industries lies in the difficulty to replace the winning firm once the agreement is signed. The advantages of incumbency may in turn foster firms’ opportunistic behaviours. However, the literature also emphasizes that reputation effects may contribute to lower incumbents’ bad conducts, even if they are placed in a monopoly situation after winning the contract. Whether these reputation effects are powerful enough to curb opportunism is an empirical question we intend to address here. Using a database of 5000 observations collected in the French water industry in 2004, we show that incumbents may have incentives to take decisions that raise rivals’ entry costs at contract’s renewal. We find little evidence that reputation effects may weaken this particular kind of opportunism.

Download the paper