Public-Private Partnerships: Agency Costs in the Privatization of Social Infrastructure Financing

Public-private partnerships (PPPs) have been subjected to considerable public debate. In particular, this debate has concerned PPP financing and its implications. Using insights from agency theory, this study aims to develop a theoretical understanding of PPP financing. The following research question is investigated: How does the privatization of financing decrease or increase agency costs in social infrastructure PPPs? A comparative case study consisting of four Norwegian PPP projects with different financial configurations is undertaken. The findings suggest that the private sector is risk averse, increasing the cost of capital. In addition, private financing does not seem to have the intended incentive effect.