The Tactical usage of PPP’s in a Balanced Budget Environment

This thesis analyses the tactical usage of PPPs in an environment in which politicians are constrained by a balanced budget rule and are uncertain about their reelection. PPPs are characterized by the bundling of the various stages of a project and are an alternative to a traditional way of procurement in which these various stages are unbundled. The choice for a certain type of procurement is tactical if it is not optimal to choose this type from a social welfare perspective but is so from the interests of the politician involved. It will be shown that indeed such tactical usage will occur. This is the result from a monetary shift towards the current budget in case that a PPP is chosen. Since the politician is not able to use debt for this purpose he will try to find other instruments of which PPPs are an example. Because the politician, who decides on the type of procurement, can decide on this budget it is in his interest to choose for this transfer and as a result for this type of procurement. As a result PPPs will be used too often.