Public-Private Partnership and Economic Efficiency: A Case Study of the Korean Urban Rail Transit System

Abstract

This study examines whether a public-private partnership (PPP) arrangement improved operational cost efficiency in Korea’s urban rail transit system. Overall, evidence suggests that private participation has not contributed to cost reduction in service operation. The study also explains how the absence of cost advantage in the private partnership may be associated with the two defining characteristics of a typical PPP: the bundling of different activities into a single contract and risk sharing between the public and private parties. I argue that, if negative externalities exist across the bundled activities, the risk sharing between the public and private parties may greatly weaken the concessionaire’s incentive for cost management.