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Public-Private Partnerships in Transportation (Efficiency Implications)

Faculty - Darold Barnum, Managerial Studies, PI, Anthony M. Pagano, Managerial Studies, Co-PI, P.S. Sriraj, Urban Transportation Center, Co-PI

The City of Chicago has been in the forefront of Public-Private partnerships (PPP's) with the long-term lease of the Chicago Skyway to a private entity in 2004. This was the first major lease of a transportation facility in the US. The lease of the Indiana Tollway quickly followed in 2005. For many in the US, PPP's are synonymous with these long-term leases. But, this is only one type of PPP. With federal, state and local governments all having budgetary problems, PPP's can help to provide transportation services through private sector involvement in a variety of ways. As these budgetary problems continue, PPP's offer an approach to fund these improvements without exacerbating these financial problems.

PPP's have been an important mechanism for building, operating and maintaining transportation facilities in many parts of the world. But, there are many issues concerning PPP's that have not been resolved. These include the length of the contract period, the use of lease revenues, non-compete provisions in contracts, facilities requiring subsidy, and a variety of other issues. The impact of PPP's has also not been studied comprehensively. The experience of the City of Chicago with parking meter privatization shows that much needs to be learned if the public sector implements this strategy successfully.

One reason for employing PPP's, and for choosing the optimal PPP, is to obtain the best possible ratio of benefits (desired outputs) to costs (resource inputs), that is, to maximize efficiency. However, for publicly provided services, there are almost always multiple outputs and inputs, which cannot be summarized into a single efficiency indicator, because their values cannot be measured in dollars. One increasingly common solution to this measurement problem is the use of Data Envelopment Analysis (DEA), which reduces multiple outputs and inputs into one overall efficiency measure, using economically valid methodologies. We will use DEA efficiency indicators, and other indicators as appropriate, as our criteria variables for evaluating various alternatives and analyzing the unresolved issues surrounding this approach.

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