Strategic risk sharing in PPPs: An experimental study on the dynamic ecologies of risk behavior in PPPs

Public-private partnerships (PPPs) are extremely powerful yet puzzling entities: Across sectoral boundaries, two or more very dissimilar partners come together to co-create public goods and services, which would otherwise be... [ view full abstract ]

Public-private partnerships (PPPs) are extremely powerful yet puzzling entities: Across sectoral boundaries, two or more very dissimilar partners come together to co-create public goods and services, which would otherwise be unattainable. While these potentially synergetic and long-term oriented partnerships could be mutually beneficial, in reality, many PPPs fail – often to the extreme disadvantage to the public sector and with dramatic losses to public welfare. Why do strategic partners fail to share risks and benefits rationally in PPPs?

In PPPs, actors’ strategic risk behavior is biased twofold: One the institutional level, strategic partners originating from dissimilar sectors face dissimilar and sector-specific regulatory boundaries that create asymmetric rooms for strategic maneuver. On the individual level, negotiation and coordination behavior is biased by sector-specific stereotyping, irrational group-think, and hidden intentions under risk.

This research projects seeks to shed light onto the “tragedy of the PPPs” by providing experimental insights on the micro-dynamics of strategic risk behavior in PPPs.

Using a series of z-Tree group experiments with original samples of N = 30 participants each, this study scrutinizes how public and private sector actors share risks and benefits asymmetrically during the life span of the partnership from its initialization to its completion or premature failure. Modelling PPPs as non-cooperative dynamic stag hunt games over a maximum of ten periods comprising systematically varied amounts of risk, this study assesses the effects public vs. private sector framing, group size and sector membership on partners’ negotiation behavior and collaboration efficiency.

This research is work in progress. Results will set the foundation for a comprehensive model of strategic risk behavior in PPPs as non-cooperative games played by irrational individuals, thus setting a rich agenda for future research.