Economics as a conceptual resource for the study of public management

Four related bodies of knowledge inform the study and practice of public management. Broadest in scope is knowledge about the political processes that place demands, provide opportunities, and impose constraints on public managers. Next broadest in scope is policy analysis, which provides the conceptual foundations and craft skills for determining what government should do and how it should be done. Organizational design, a subset of policy analysis, gives insight into how the public sector can be organized to facilitate the effective delivery of goods and services. Narrowest in scope, but most directly relevant to the practice of management, is knowledge about how to carry out executive functions skillfully within existing organizational designs. We take the latter two bodies of knowledge, organizational design and executive function, as the core of the craft and science of public management. In this essay we consider what the discipline of economics offers for research on the core of public management

The Theory and Evidence Concerning Public-Private Partnerships in Canada and Elsewhere

The popularity of Public-Private Partnerships (PPPs), as a way for governments to get infrastructure built, continues to grow. But while the public is often led to believe that this is because they result in a more efficient use of taxpayer funds and a more streamlined process, this is not necessarily the case. In fact, the clearest advantage that PPPs offers is to politicians, who are able to transfer to private partners the risks of miscalculated construction costs and revenue projections (as with a toll road, for example). For taxpayers, the deals can often work out worse than if the government had simply pursued a fixedprice design-build Public Sector Alternative (PSA) arrangement. Even from the very start of the process, there are often a limited number of private consortia equipped to bid on major PPPs, which already leads to the potential for bidders to build in higher profits, and thus, higher costs for taxpayers. Nor are these private consortia oblivious to the risks they assume; they must therefore build into their bid an effective “insurance premium” to account for unforeseen delays and increased costs. The use of private debt to finance construction further inflates prices over a government’s lower cost of capital. To an incumbent government, a key advantage of PPPs is the ability to avoid upfront costs, and let the private consortium arrange financing until the project is complete, allowing politicians to take the credit for new infrastructure while passing future maintenance and operating costs off onto future politicians, taxpayers and/or users. This, however, only provides both the incentive and bookkeeping artifice — since costs are incurred off the government’s current balance sheet — for governments to build more infrastructure than might otherwise be justified. Advocates of PPP would argue that one clear benefit PPPs do offer the public is an impressive record of bringing in projects on time and on budget. It is true that the inflexibility of contracts and the financial risk transferred to the private partners have a powerful effect in keeping projects on track. However, the yardsticks by which the on-time and on-budget criteria are measured are typically flawed. The “start dates” of PPPs are marked after the conclusion of a lengthy negotiation and project-planning process between a government and a private consortium, making project completions seem more efficient than they really are. Meanwhile, the estimated cost of a project has a tendency to increase during that preliminary process. In other words, the delay and cost inflation that so often characterize traditional PSAs are not magically eliminated in a PPP: they just tend to occur prior to the first shovel breaking ground, rather than incrementally over the course of the project’s construction. Ultimately, several of the problems common to traditional government PSA projects, and supposedly absent from PPP arrangements, are still there, only much harder to discern. The costs can be just as high, if not higher than with a fixed-price PSA, the timeframes can be just as lengthy, when the entire process is accounted for, and the amount of government resources tied up in the negotiation and planning process will often rival that of traditional procurement methods. Furthermore, all those risks that are supposedly transferred to private players are never truly transferred: The government is always the residual risk holder should the consortium somehow fail. From a policy standpoint, the measure of whether PPPs are worthwhile should be based not on whether they come in on time or on budget, but whether they increase social value relative to a PSA. There is, currently, no convincing evidence that they do

The Value of High School Graduation in the United States: Per-Person Shadow Price Estimates for Use in Cost–Benefit Analysis

One way for jurisdictions with limited analytic resources to increase their capability for doing cost–benefit analysis (CBA) is to use existing shadow prices, or “plug-ins”, for important social impacts. This article contributes to the further development of one important shadow price: the value of an additional high school graduation in the United States. Specifically, how valuable to a student, government, and the rest of society in aggregate is a high school graduation? The analysis builds on the method developed by the Washington State Institute for Public Policy and presents numerical updates and extensions to their analysis. For the U.S., the estimated net present value (the social value) using a 3 percent real discount rate of this shadow price is approximately $300,000 per each additional graduate. In appropriate circumstances, this value can be “plugged-in” to CBAs of policies that either directly or indirectly seeks to increase the number of students who graduate from high school