PUBLIC-PRIVATE GOVERNANCE, UNCERTAINTY AND LONGEVITY
IMPLICATIONS: EXPLORING WATER SECTOR PARTNERSHIPS IN THE
DEVELOPING WORLD
Ilze Kivleniece
Imperial College London
South Kensington Campus, London SW7 2AZ
ilze.kivleniece@gmail.com
Working Paper to be presented at the Tilburg Law and Economics Center (TILEC)
Workshop on “Economic Governance and Organizations”
June 6-7, 2013
Tilburg
ABSTRACT
While public-private ties are increasingly recognized as novel organizational forms for governing
economic exchange across public and private sector boundaries, little is known on how organizational
actors select among different public-private governance alternatives, and what are the long term
performance implications of these choices. We build on a theoretical distinction between integrative
versus autonomous public-private organizational forms to investigate how different forms of
exogenous environmental uncertainty affect the emergence of alternative public-private governance
structures and their subsequent longevity. Our results, derived from public-private water sector
partnerships in the developing world, suggest that a hybridization of underlying governance allows
organizational actors and private actors, specifically, to differentially address market-based as well as
political and social contingencies. While political uncertainty is shown to be associated with
autonomous public-private governance choice, high market-based volatility is linked strongly with
adoption of integrative public-private arrangements. Overall, our study highlights the critical impact
that institutional, not just transactional, alignment between governance features and ex ante external
environment conditions plays in the formation and duration of underlying organizational ties.
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INTRODUCTION
Recent studies draw increasing attention to the phenomenon of interorganizational or hybrid
governance forms recognizing that they may exhibit a distinct rationale and a high degree of variation
on governance dimensions far beyond the intermediate values assigned to them by traditional „markethierarchy” or “public-private” dichotomies (Demil & Lecocq, 2006; Kivleniece & Quélin, 2012;
Makadok & Coff, 2009). Nascent insights on public-private organizational ties, in particular, point to
governance forms that cross or fuse elements and features of private hierarchies and public
bureaucracies into novel organizational constellations with divergent ownership, authority and
incentive strength (Kivleniece & Quélin, 2012; Rufin & Rivera-Santos, 2010). Yet, few empirical
studies exist on the determinants of public-private governance variation and the long term
performance implications of these relationships, particularly from a private actor’s perspective. This
lack of insights lies in a stark contrast to literature on private-private or interfirm organizational
relations, such as alliances or joint-ventures, where a large amount of studies are dedicated to the
antecedents of interorganizational boundary choices, such as contractual, relational and equity based
arrangements (e.g. Folta, 1998; Hagedoorn & Hesen, 2007; Hennart, 1988; Oxley, 1997; Pisano,
1989), as well as their stability, longevity and performance implications (e.g. Ariño, 2003; Gulati,
1998; Lunnan & Haugland, 2008; Zollo, Reuer, & Singh, 2002).
In the present study, we built on the theoretical insights on public-private ties as distinct, discrete
hybrid governance alternative (Henisz, 2006; Kivleniece & Quélin, 2012) to investigate empirically
how different forms of market and institutional environment based uncertainty are associated with a
rise of different forms of public-private organizational structures and their varying longevity. We
purposefully adopt a broad conceptual definition of public-private ties as any long-term contractual
relationship between one or more private actors and public bodies that relies on private sector
resources and competences for a direct provision of a public good or service.1 We likewise build on
and acknowledge insights from prior studies, particularly in the field of economics and public policy,
1
We acknowledge that public-private collaboration may also occur through more specific research-based ties, such as firmuniversity partnerships geared towards scientific knowledge creation and sharing between public and private organizations.
In the present study, we do not directly address this particular form of ties specifically, them representing a subject of a
growing number of studies in research and innovation literature.
3
dedicated to public-private boundary decisions and their economic welfare implications (see, for
example, Chong, Huet, & Saussier, 2006; Chong, Huet, Saussier, & Steiner, 2006; Guasch, 2004;
Guasch, Laffont, & Straub, 2007, 2008; Zarco-Jasso, 2010). Our focus, nevertheless, is different and
complementary by adopting a predominantly private actor’s perspective and investigating,
specifically, the role of environmental uncertainty in the formation and longevity of public-private
structures as hybrid governance forms. In doing so, we hope to bring to light the multi-faceted nature
and effects of environmental uncertainty – not only market-based, but also broader institutional –
affecting both the formation of public-private ties (Rangan, Samii, & Van Wassenhove, 2006), as well
as their subsequent performance.
Prior literature has tended to associate the presence of substantial environmental uncertainty with
a restricted recourse to hybrid governance arrangements and strong preferences for vertical integration,
particularly so, in mature industries (Folta, 1998; Williamson, 1991). Yet, large part of public-private
interaction takes place in relatively mature, highly asset-specific infrastructure sectors (Kwak, Chih, &
Ibbs, 2009), making hybrid forms of public-private interaction appear considerably more prevalent in
these settings than a formal recourse to theory would suggest. Moreover, from political or nonmarket
strategy viewpoint, the unpredictability stemming from institutional or political environment, in
particular, has been argued to lead to significant impediment of private actor involvement in public
domains of interest (Henisz, 2002; Henisz & Zelner, 2001; Levy & Spiller, 1996; Savedoff & Spiller,
1999). This view, however, contrasts with increasing evidence of extensive and diverse public-private
contractual ties formed by private firms and
public sector in environments characterized by
substantial market or political volatility, such as the developing world (George, McGahan, & Prabhu,
2012; Lenssen & Van Wassenhove, 2012; Rangan et al., 2006).
We address these opposing views by hypothesizing that, rather than limiting the engagement or
internalizing exchange, organizational actors are able to respond to different facets of environmental
uncertainty by “hybridizing” the governance, that is selectively adapting its key features, such as the
degree of shared property rights or authority form, to at least partially mitigate the potential hazards.
We build on a theoretical distinction between integrative versus autonomous public-private
4
governance forms – two conceptually different hybrid arrangements in terms of underlying operational
and financial model, as well as features related to authority, property rights and strength of incentives
(Kivleniece & Quélin, 2012) - to illustrate how the likelihood of adopting these arrangements and their
stability is likely to vary depending on the environmental contingencies surrounding the exchange,
particularly so, from a private actor’s perspective.
We, first, distinguish among market-based and institutional uncertainty as two fundamental types
of exogenous environmental uncertainty affecting public-private governance choices. Furthermore, we
theorize on two related, yet, distinct facets of institutional uncertainty – political uncertainty, a well
established concept, referring to the feasibility of public policy or regime change (Fitzpatrick, 1983;
Henisz, 2004; Henisz & Delios, 2004), and social uncertainty or volatility, a separate notion we
develop to refer to the extent of variation and feasibility of social dispute or contestation arising and
affecting the underlying exchange. Our core hypotheses rest on the argument that, from a private
actor’s perspective, each of these different facets of exogenous environmental uncertainty is likely to
lead to a choice of public-private governance structure with radically different features, deemed as
better fit to cope with underlying contingencies. Hence, high political uncertainty (few political
constraints) is expected to stimulate adoption of autonomous public-private governance choices, while
high social and market-based volatility – integrative public-private arrangements. Moreover, we
predict that the degree of structural alignment or fit between the selected public-private governance
structure and the underlying environmental contingencies will be a critical determinant of underlying
partnership duration or longevity.
We investigate our hypotheses by examining long-term public-private contractual engagements in
international water industry, covering fifty-four developing world countries. Our results illustrate that
alternative hybrid forms of public-private governance co-exist with each form able to differentially
address the type of contingencies surrounding the exchange. Based on the empirical context set in the
developing world, our findings illustrate that organizational actors in these environments are able to
economize and intentionally select public-private governance structures and features deemed as more
fit in the light of underlying environmental hazards, particularly so, from the private actors
5
perspective. We find support for our hypotheses that high political uncertainty (low level of political
constraints) may be associated with higher preferences for autonomous public-private governance
alternatives, while high market-based volatility – with an inverse, opposing inclination towards
integrative public-private arrangements. Moreover, our empirical findings suggest (even if mixed in
evidence) the critical impact that initial structural alignment between governance features and the
prevailing institutional, not just transaction-specific environment characteristics carries on the
subsequent duration or longevity of observed public-private ties. From a broader theoretical
perspective, our study contributes the emerging view on hybrid organizational forms as complex,
multi-dimensional arrangements exhibiting divergent governance features, entailing a complex set of
trade-offs and a differing ability to address the contingencies surrounding the exchange. It also
contributes to clarify and expand the notion of exogenous environmental uncertainty by disentangling
the underlying sources of uncertainty in governance choice and highlighting the role of structural
alignment beyond market-based transaction characteristics to encompass contingencies from broader
institutional environment.
The paper is structured as follows: we start with an overview of theoretical background and
develop a set of hypotheses related to governance choice under different facets of environmental
uncertainty, as well as longevity implications under potential governance (mis)alignment to these
environmental characteristics. We proceed with a review of methodology and empirical results. The
paper concludes with a discussion on implications, limitations and future research directions.
THEORETICAL BACKGROUND AND HYPOTHESES
Uncertainty, as one of the central issues that organizations seek to cope with (March & Cyert,
1963; Podolny, 1994; Thompson, 1967), has long been acknowledged to play a key role in the
formation and structure of alternative organizational forms, particularly, from comparative
institutional analysis and transaction cost perspectives. Manifesting through a lack of information and
predictability on future states of nature, given a specific decision-making scenario (Henisz & Delios,
2004; Milliken, 1987), uncertainty is argued to substantially alter and restrict the choice of
organizational structures, particularly, in relation to a varying degree to which the underlying
6
structures are able to address the problem of costly adaptation to unforeseen disturbances surrounding
the exchange (Geyskens, Steenkamp, & Kumar, 2006; Walker & Weber, 1984; Williamson, 1991).
An exogenous environmental uncertainty in an exchange setting arises whenever the
contingencies surrounding the exchange are perceived as too unpredictable to be determined ex ante
and specified in the contract, and are generally outside the control of the organization facing it (Folta,
1998; Geyskens et al., 2006; Krishnan, Martin, & Noorderhaven, 2006). Yet, as a number of scholars
point out, the exact effect of environmental uncertainty in the choice of hybrid governance structures
remains unclear (Delmas & Tokat, 2005; Sutcliffe & Zaheer, 1998). While, on one hand, it calls for
more hierarchical, independent forms of governance due to underlying costly adaptation problem
(Williamson, 1991), on another - environmental uncertainty is also increasingly recognized to induce
firms to engage in both market and hybrid forms of arrangements in order to sustain flexibility,
particularly, in fast changing, knowledge-dependent environments (Folta, 1998; Geyskens et al.,
2006).
Environmental Uncertainty in the Context of Public-Private Interaction
These opposing theoretical views on the effect of environmental uncertainty on hybrid
governance structures are particularly evident in the analysis of public-private ties as a novel, discrete
form of interorganizational engagements (Kivleniece & Quélin, 2012). Prior literature has
predominantly associated the presence of substantial environmental uncertainty with a limited
recourse to hybrid governance arrangements and strong preferences for vertical integration, at least so,
in mature industries (Folta, 1998; Williamson, 1991). Yet, in the context of public-private exchange,
market-based environmental uncertainty or conditions where no odds can be placed on the future
demand or the viability of the technological solution have been increasingly acknowledged to facilitate
the collaboration between the two sectors (Kivleniece & Quélin, 2012, Rangan et. al., 2006). A
growing, even if dispersed empirical evidence illustrates how a range of industries, including
relatively mature, highly asset-specific public infrastructure sectors, have witnessed a burgeoning rise
in public-private governance arrangements (Henisz, 2006; Kwak et al., 2009) far beyond what a
formal recourse to transaction cost theory would predict.
7
Furthermore, important theoretical concerns regarding the feasibility of public-private actor
engagements have also been cast in relation to uncertainty stemming from the institutional or political
environment, argued, typically, to represent a significant impediment to private actor entry into the
domains of public interest (Henisz, 2002; Henisz & Zelner, 2001; Levy & Spiller, 1996; Savedoff &
Spiller, 1999). Yet, public-private ties are paramount or, at least, strongly advocated in many settings
characterized by substantial market and political volatility, such as, for example, public-private
partnerships in the developing world (George et al., 2012; Lenssen & Van Wassenhove, 2012; Rangan
et al., 2006).
To address these contrasting perspectives, we build on nascent theoretical insights on the role of
environmental uncertainty in the choice of public-private governances modes (Kivleniece & Quélin,
2012; Rangan et al., 2006) to argue that they underscore the co-existence of different forms of publicprivate governance able to differentially address various facets of environmental uncertainty as the
answer to the hybrid governance puzzle. From a theoretical perspective, we investigate governance
under uncertainty by disentangling the notion of environmental uncertainty into a more fine-grained
set of contingencies surrounding public-private ties as hybrid governance forms. More specifically, we
differentiate between market-based and institutional uncertainty, decomposing the latter into two
further, distinct categories. We focus not only on the effect of potential political or regime change
(proxied through the level of political constraints), but, likewise, on a distinct set of contingencies
arising from a variation and feasibility of social dispute or contestation in relation to underlying
exchange – a notion we term as social volatility. Our approach, hence, exposes environmental
uncertainty as a multilayered variable, carrying different implications for alternative public-private as
hybrid governance choices. At last, we also predict different longevity implications for public-private
arrangements in respect to the extent the selected organizational structures may be deemed as
(mis)aligned with surrounding environmental contingencies.
Public-Private Governance as A Hybrid Organizational Form
As collaborative engagements or ventures between state or other public bodies and private
organizations, public-private ties represent hybrid governance arrangements, in a sense of using the
8
resources and governance features of more than one independent organization (Borys & Jemison,
1989). However, in contrast to joint ventures and other types of private interorganizational forms,
public-private arrangements as hybrid forms occupy a different location in the governance space,
located between public and private hierarchies (Henisz, 2006; Williamson, 1999), and, as a result,
feature a specific set of characteristics (Kivleniece & Quélin, 2012).
In Figure 1, we illustrate how this reasoning follows and extends Williamson’s (1999) classical
governance spectrum. In it, public bureaucracies are recognized as an extreme form of organization,
distinct from private hierarchy. Then, regulation is added as an intermediate form of organization,
“akin to hybrid mode in the markets and hierarchies” but possessing “a syndrome of attributes that are
located between polar modes of public and private bureaus” (Williamson, 1999: 335-336), such as
intermediate strength of incentives, high degree of administrative controls, mediocre propensity
toward probity, or compliance to public sector goals and a semi-legalistic dispute settlement regime.
Public-private arrangements, we refer to, correspond to this governance space, yet, go beyond the
regulation to encompass a broader set of direct interorganizational ties between public and private
organizations. Following Makadok & Coff (2009), who delineate hybrid organizational forms as
structures between the market and hierarchy that are „market-like” in some respects and „hierarchylike” in others (rather than as intermediate forms in unidimensional space à la Williamson (1991)),
hybrid public-private arrangements are „public-like” in some respects and „private-like” in other,
resulting in configurations that may exhibit radically different features in terms of fundamental
governance dimensions.
------------------------------------------------Insert Figure 1 about here
------------------------------------------------In assessing this public-private as hybrid governance variation, we draw on the theoretical
typology developed by Kivleniece & Quélin (2012), according to which public-private ties can be
classified into two conceptual categories of contrasting hybrid public-private governance forms integrative versus autonomous – each featuring a distinct, internally consistent blend of operational
model, financing or revenue model, and resulting in different fundamental governance features, such
9
as property rights, incentive structures and authority (Holmstrom & Milgrom, 1994; Makadok & Coff,
2009). Of these dimensions, we argue, at least three are directly observable and empirically
identifiable – 1) operational model, referring to the underlying division of tasks and coordination
among public and private actor, either predominantly private or shared jointly with the public partner,
2) financial or revenue model, either end-user or public payment based, and being a strong indicator of
the type of efficiency incentives prevailing under each type or arrangement, and 3) ownership model,
being either predominantly (or temporarily) private or predominantly public (shared) (see Figure 2 in
Appendix for a graphical overview of the two conceptual public-private hybrid forms along these
dimensions).
According to this typology, autonomous forms of public-private ties, characterized by relatively
independent set of operations run by private actor, an end-user based financing model, and limited,
largely supervisory role of public actors, represent a hybrid form of governance featuring a mix of
relatively high-powered incentives, extensive private authority and relatively broad private property
rights (at least, temporarily). Integrative forms of public-private ties, by contrast, feature a more
integrated set of operations between public and private counterparts, with public financing model and
substantive control by public actors, resulting in effectively weaker productivity incentives, shared
property rights and authority (Kivleniece & Quélin, 2012).
Both of these hybrid public-private governance forms, we argue, may represent theoretically
viable organizational models, yet, from the perspective of organizational actors involved, as
governance alternatives remain unclear. While in a number of public sectors the choice between these
alternative structures may be predetermined by the nature of underlying services (e.g. hospital and
incarceration facilities typically relying on integrative public-private engagements that retain a large
degree of public sector involvement), in majority of public-private collaboration contexts the
underlying choice between governance alternatives is not pre-determined (Kivleniece & Quélin,
2012). Moreover, the performance or longevity implications associated with these ex ante governance
choices are likewise not clear. We address these questions below by linking the selection between two
conceptual public-private hybrid governance alternatives to different types of exogenous
environmental uncertainty, and by predicting different longevity implications for public-private
10
arrangements in respect to the extent the adapted organizational structures may be (mis)aligned with
underlying environmental contingencies.
Public-Private Governance under Institutional Uncertainty
We start by identifying and assessing the effects of two distinct facets of uncertainty stemming
from the institutional environment – political uncertainty and social uncertainty (or volatility).
Political Uncertainty. Because of their very nature, ties intersecting public and private
organizational boundaries and interests are particularly susceptible to adverse development and lack of
stability in the political landscape. Any form of political uncertainty – understood as difficult-toanticipate, important discontinuities in the business environment that may occur as a result of political
change (Fitzpatrick, 1983), can substantially alter the effectiveness and outcomes of collaboration,
particularly so from the private actor’s perspective. Henisz & Delios (2004) point out to at least two
distinct sources of such uncertainty – political hazards and regime change – which both can impact
significantly the continuity and past commitments made within public-private exchange, such as the
level of investments, proprietary rights to assets or the degree of effort exercised by public
counterparts. Political uncertainty is argued to stem from the structure of country’s existing political
institutions, which may provide either substantial or limited discretion to policy-makers, depending on
the extent to which there exist competing, independent political institutions that may constrain the
arbitrary or even opportunistic behaviour by public actors (Henisz, 2004; Henisz, 2002). If such
political constraints are limited, there is “a higher likelihood that status-quo policies that affect […]
costs, revenues and asset value will change” (Henisz & Delios, 2004).2
In the context of public-private collaboration, as Holburn & Vander Bergh (2008: 531) point
out, political uncertainty “creates challenges for firms and investors when the performance of marketbased investment strategies depends on long-term policy stability and predictability, as is particularly
the case in infrastructure industries”. Because of the long-term, resource- and asset-specific
2
It is important to note, that from a theoretical perspective, the notion of „political uncertainty” is distinct from
and not necessarily aligned with the level of democratic development in the respective environment. Hence, a
democratic system with a high concentration of political power (e.g. in legislative and executive branches) may
exhibit few political constraints and not necessarily be more certain (from a private actor’s perspective) than a
more autocratic system.
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investments characterizing most of public-private engagements, lack of ex ante predictability on
policy environment raises concerns of costly ex post adaptation and rent redistribution. The effect of
political uncertainty, from a private actor’s perspective, then, boils down to a problem of credible
commitment on public actor’s side - if few political constraints exist to prevent the ex post policy
change, few incentives exist for private actors to engage in relations with public actors that feature
high dependence on public sector commitments.
As an outcome of heightened political uncertainty, existing literature has tended to predict
reduced or even absent private actor investment in public domains such as infrastructure services – at
least from a privatization viewpoint (Henisz, 2002; Levy & Spiller, 1994; Spiller, 1993). The focus on
privatization as (an extreme) form of vertical integration, however, has tended to obscure the view on
more complex hybrid arrangements involving long-term contractual ties between public and private
counterparts. As Kivleniece & Quélin (2012) point out, in the context of public-private ties,
heightened political uncertainty is expected to lead towards preferences for governance arrangements
that lessen the dependence of private actors on their public sector counterparts, while still retaining the
underlying binding ties. In terms of autonomous versus integrative public-private governance choice,
it implies increased preferences for autonomous forms of public-private ties, characterized by a higher
degree of autonomy in which the private actor operates, less scope and opportunities for an
interference of public authorities, and typically, an adaption of neoclassical institutional mechanisms,
such as arbitration panels, for contract enforcement and renegotiation (Kivleniece & Quélin, 2012).
We refine this theoretical insight by associating the extent of political uncertainty with the
feasibility of policy and regime change - dependant, in turn, on the extent of political constraints in the
political environment (Henisz, 2000a, 2002; Henisz & Zelner, 2006). More specifically, we predict
that in environments with fewer institutional “checks and balances”, and, hence, heightened likelihood
of policy or regime change, public-private collaboration is expected to be organized in the form of
autonomous structures with stronger private actor’s authority, more property rights assigned to private
sector, yet, still retained public actor oversight and involvement. Such a governance setup, compared
to more integrated forms, will serve to reduce the bargaining power asymmetries between public and
12
private counterparts, lessen the scope of public actor’s discretionary action within the collaboration,
provide higher flexibility to private actors for ex post adjustments, while, simultaneously, still securing
public actor engagement in a binding bilateral engagement.
Hypothesis 1: The greater the feasibility of policy or regime change (i.e. the fewer the political
constraints), the higher the likelihood of autonomous forms of public-private ties arising
between private and public actors.
Social Uncertainty. Adopting the notion of institutional environment as „a locus of parameters,
changes in which parameters bring about shifts in the comparative costs of governance” (Williamson,
1991: 269), we note that uncertainty related to such „parameter shifts” cannot be restricted to
unforeseeable changes in political institutions alone. Instead, it should, as we argue, likewise account
for contingencies associated with uncertain behaviour of a broader set of institutional actors – not just
government but also “community constituents in the organization's task environment” (Baum &
Oliver, 1991: 187; Turk, 1973; Zucker, 1987), or, more broadly, any agency exercising social control
(Rowan, 1982) – able, hence, to influence the underlying organizational structures. Non-governmental
actor contestation and social pressures on corporations as organizational targets, in particular, have
been increasingly demonstrated in the social movement literature (Davis, Morrill, Rao, & Soule, 2008;
Eesley & Lenox, 2006; King & Soule, 2007; Weber, Rao, & Thomas, 2009). They have also been
brought to attention through scholarly insights on private (as opposed to public) politics – processes
through which certain non-public social agents or activists may attempt to change practices of market
organizations for value redistribution purposes (Baron, 2001; Baron, 2003)
Yet, while the influence and potential opposition by diverse social agents, forming part of the
broader contestability in institutional environment, has become widely acknowledged, few studies
exist that would identify social actor related contingencies as a separate, discrete source of
environmental uncertainty. Instead, uncertainty of institutional environment has been overwhelmingly
associated with political volatility, political hazards, or related notions, such as the degree of rule of
law or corruption (Brunetti & Weder, 2000; Fladmoe-Lindquist & Jacque, 1995; Henisz, 2000a;
Henisz, 2000b). Moreover, in the studies where external party or diverse interest group influences
13
have been explicitly recognized, scholars have predominantly viewed them as subordinate pressures,
influencing the political environment and policy change through the demand for public policy or
regulatory changes (Bonardi, Hillman, & Keim, 2005; Hillman & Keim, 1995; Levy & Spiller, 1994;
Spiller, 1990) and, hence, treated them as part of political uncertainty equation.
Whilst not denying the importance of these insights, this approach, we argue, falls short of
embracing the multi-faceted nature of institutional environment uncertainty (Delios & Henisz, 2003)
and multiple, discrete contingencies stemming from it. We argue that both political uncertainty and
social uncertainty or social volatility (as a proxy to social uncertainty) – defining the latter as the
extent of feasibility and variation in social dispute or contestation over the underlying exchange, may
represent two interrelated, yet, independent contingencies in institutional environment. From this
perspective, then, even if action by various social groups may deliberately affect and trigger
unpredictable shifts in policy environment, both “public” and “private” politics effects represent two
separate, distinct mechanisms affecting economic activity (Baron, 2001), and, hence, two distinct
facets of environmental uncertainty.
One important extension of this insight is that limited feasibility of policy change through formal
political institutions need not curtail the possibility nor the potential effect of unforeseen social
contestation by non-political actors. In public-private context, this insight is visible, for example,
through one of the largest social revolts ever against public-private arrangement in water services
worldwide – the “water war” of 2000 in Bolivia. An abrupt termination of the arrangement following a
mass social uprising took place despite the relatively high level of political constraints in Bolivia,
predicting an environment of policy continuity equivalent to that of Switzerland or Netherlands at the
time (based on data by Henisz, POLCON (2010 edition)).
In public-private governance context, social uncertainty raises significant ex ante concerns in
terms of its potential impact on ex post governance costs and outcomes. Kivleniece & Quélin (2012)
identify these ex post pressures as social activism and argue it to be substantially more likely to arise
under autonomous public-private governance structures, given the weaker legitimacy of privateincentive based structures, higher stakeholder power as well as greater visibility and vulnerability of
14
these organizational modes as activist targets. We build on these insights, yet, complement the theory
by arguing that social activism, as an ex post (endogenous) hazard, may also be present, in the form of
social uncertainty or volatility, as an ex ante contingency - to the extent is may be exogenous or
unrelated to underlying public-private engagement, and related, instead, to broader ideological shifts
in the social control environment. Being conceptualized as the possibility of social dispute or
contestation in a given exchange environment, one potential gauge of such ex ante social volatility
could be, among others, the polarization of certain opinions in the society (DiMaggio, Evans, &
Bryson, 1996), for instance - in regards to private enterprise engagement in public goods provision. In
the environments that signal a potentially high ex ante social volatility, organizational actors would
then alter and adjust the underlying (hybrid) governance structures to better fit and deal with
anticipated contingencies.
Applying the typology of dual public-private governance forms, we specifically hypothesize that
the greater the social volatility in terms of the extent of feasibility and variation in social dispute or
contestation of underlying exchange, the more likely public and private organizational actors are to
engage in integrative governance structures. Such a choice, we argue, will be motivated by a number
of features that integrative public-private governance arrangements embody. First, because of the
strong, visible institutional linkages to public actors, a higher degree of legitimacy (Dacin, Oliver, &
Roy, 2007) and reduced probity concerns (Kivleniece & Quélin, 2012), integrative governance forms
are expected to attenuate the escalation and utility of social contestation as such. Moreover, in the case
of eventual rise in social pressures and ex post contestation, integrative public-private engagements are
likely to be better adapted to sustain these pressures by having limited resource-based dependence on
external constituents, and, instead, broader access to public resources and public financing-based
compensatory mechanisms.
Hypothesis 2: The greater the feasibility of social dispute or contestation (i.e. social volatility),
the higher the likelihood of integrative forms of public-private ties arising between private and
public actors.
15
Public-Private Governance under Market-Based Uncertainty
Apart from uncertainty related to institutional environment, other, more traditionally emphasized
facets of environmental uncertainty relate to market-based contingencies, such as volume or
technological uncertainty (Folta, 1998; Walker & Weber, 1984) as critical factors affecting
governance structures and costs (Geyskens et al., 2006). As such, market or demand-based uncertainty
or volatility, i.e. the variation and unpredictability of change in future demand conditions, is likewise
expected to play an important role in public-private governance choices. Here again, however, certain
features of hybrid governance structures may allow actors to cope with this type of uncertainty better
than others. We draw on Kivleniece & Quélin (2012), who, applying the notion of market-based
uncertainty to public-private governance choices, highlight that, contrary to transaction costs
predictions (Geyskens et al., 2006), increased demand or volume-based unpredictability in the context
of public goods and services are likely to translate in preferences for integrative rather autonomous
governance forms. From a private actor’s perspective, such preferences are likely to be motivated by a
realization that the lack of possibility to establish reasonable odds regarding future demand may make
the estimated payoff structure highly unclear and trigger costly ex post adjustments, particularly, in the
case of highly asset-specific investments characterizing most of public-private exchanges. In such a
case, unless public actors would participate with tax-based payments, guaranteed revenue or any other
form of market-based volatility mitigating mechanisms, private actor engagement in the public area of
interest would be substantially hampered or not viable at all.
In line with these insights, we hypothesize that the greater the market-based (demand) volatility,
the more likely both public and private actors are to incline towards integrative forms of public-private
partnering, in efforts to secure the viability of underlying interorganizational engagement. In the
presence of high market volatility, tight collaboration structure and compensation schemes based on
public sector financing are expected to serve as a “safety net” against adverse market conditions, and
sustain organizational relations between the two sectors better than governance structures that rely on
a higher degree of private actor authority and market-driven compensation mechanisms. In
comparison to the latter forms, integrative partnering is likely to secure more steady flow of revenues,
16
ease access to market (by modifying the competitive entry conditions), and establish more favourable
pricing environment.
Hypothesis 3: The greater the market-based (i.e. demand) volatility, the higher the likelihood of
integrative forms of public-private ties arising between private and public actors.
The Public-Private Governance (Mis)Fit and Longevity Implications
The hypotheses above suggest that organizational actors engaged in public-private ties are likely
to differentiate among alternative hybrid governance structures and adopt governance with features
able to at least partially mitigate the type of contingencies prevailing in the external environment.
Autonomous governance structures, characterized by predominantly private property rights, high
degree of private managerial discretion and limited public-actor involvement in day-to-day activities,
are likely to be preferred under the conditions of substantial political uncertainty, while integrative
public-private governance structures, based on shared managerial authority, tight collaboration
patterns and higher degree of public sector ownerships rights – under substantial social and marketbased (demand) uncertainty.
Yet, due to both exchange-specific and actor-independent set of circumstances, on many
instances the chosen governance arrangements may not be optimally aligned to underlying external
environment characteristics. As our hypotheses and prior work suggest (Kivleniece & Quélin, 2012),
because of divergent governance preferences under different environmental and firm-specific
contingencies, an optimal governance alignment may be hard to attain, and involve considerable tradeoffs. Path dependency and prior governance choices (Argyres & Liebeskind, 1998; Langlois, 2003)
may drive less-than-optimal governance forms being selected over time. In the context of publicprivate collaboration, in particular, many governance alternatives may also be restricted by specific
legislative, normative or regulatory requirements – leading, once again, to potential mismatch between
the characteristics of external exchange environment and the adopted public-private governance
features. For instance, as a prominent case in the water sector engagements, between 1995 and 2002,
China prohibited foreign companies from being involved in the network operation, effectively
eliminating, as a result, any possibility for concession-based contracts with foreign water operators.
17
The thrust of our theoretical argument is that potential governance misalignment, resulting from
underlying path dependencies or external restrictions, are likely to carry adverse effects on the
longevity, and, through it - indirectly, also on the performance of the underlying public-private
arrangement, to the extent to which the duration of the partnership over initially preset timeframe
allows for its full economic value to be garnered.
As such, the notion of (mis)alignment (Williamson, 1988, 1991) and its effects on performance
are well established in transaction cost economics literature. Structural alignment - defined as the
extent to which the selected governance attributes match two main transaction characteristics, asset
specificity and (behavioural) uncertainty – has been found a strong predictor of organizational
profitability, technological performance and survival (Leiblein, Reuer, & Dalsace, 2002; Nickerson &
Silverman, 2003; Silverman, Nickerson, & Freeman, 1997). Yet, almost all existing studies have been
limited to internal, transaction-specific parameters of alignment without a further recognition of
broader, multiple level alignment that may be required in the view of exogenous environmental
uncertainty characterizing the exchange. Moreover, to our knowledge, none of the prior studies have
explicitly accounted for the variation and governance (mis)alignment implications in hybrid
governance forms (such as public-private ties), assuming these governance forms to be ill-suited to
high-uncertainty environments (Williamson, 1991) and focusing, instead, on the classical “buy-ormake” dichotomies.
We address the limited insights on hybrid governance alignment by arguing that public-private
interorganizational ties, as distinct hybrid arrangements, may represent an inherent variation in
governance structures leading to a different degree of fit with the key characteristics of underlying
environment, such as political, social and market-based uncertainty. We predict that a greater
misalignment or misfit is likely to be reflected in a reduced longevity of underlying ties, and,
ultimately, a weaker performance of the partnership in terms of achieving its initially set public and
private economic objectives. We, specifically, hypothesize that the greater the public-private
governance misfit in relation to environmental contingencies, the shorter the duration of the
underlying ties, based on the total time they persist from the moment of their conception to any major
18
distress event, such as litigation, cancellation or abrupt termination, at any subsequent point in time.
Such an effect is expected to arise because, akin to purely private governance settings, some of the
sources of uncertainty materializing over time will render misaligned governance forms less stable to
withhold or adjust to underlying pressures, and, a result, prompt them to cease prematurely. In the
public-private governance setting, specifically, any potential ex post adjustments to underlying
governance arrangements are likely to be further complicated by the public-private contractual setting
bearing a high degree of contractual rigidity. As Spiller (2008; 2010) highlights, such a rigidity would
stem from the specific nature and accountability of public agencies, as well as the high degree of
physical asset-specificity characterizing these engagements. As a result, in public-private settings,
misaligned governance forms may be harder to correct and more likely to terminate prematurely
without an adjustment.
Moreover, under a public-private governance misfit, any potential ex post adjustments may suffer
from underlying actor opportunism, and, in particular, from public actor’s superior institutional
powers to change the underlying value distribution between public actors, private firm and external
stakeholders. As private actor’s share of value may be threatened by ex post adjustments under
misaligned governance form, its likelihood of premature exhibit will be substantially enhanced.
Estache & Grifell-Tatje (2011), for example, in their study on the failure of a landmark public-private
water partnership in Mali indicate how the premature private actor’s withdrawal from the underlying
partnership (lasting only from 2001 to 2004) resulted from both ill-chosen initial financial governance
structure, providing a poor fit to underlying market demand conditions and social contingencies, as
well as from subsequent regulatory intervention reducing the private actor’s gains from the
engagement.
Our hypothesis, hence, extends the existing studies on governance and structural alignment by
illustrating the longevity of public-private as strongly influenced by the degree to which the
underlying organizational relationship is appropriately governed in the light of exogenous marketbased as well as institutional, i.e. political and social, contingencies.
19
Hypothesis 4: The higher the public-private governance misfit in relation to market-based,
political and social contingencies characterizing the economic exchange, the shorter the
longevity of underlying public-private ties.
METHODOLOGY
Empirical Setting and Data
For the empirical setting of our study, we use the data on public-private infrastructure
engagements in international water sector, focusing, in particular, on private actor participation in
water projects in the developing world countries3. Our choice of this particular empirical setting, is
motivated by a number of considerations. First, along with the economic and social significance
attributed to water (and sanitation) sector in general, it represents a context with one of the longest
standing track records of public-private collaboration, and a growing, even if divisive, role played in it
by the private sector. It is estimated that about eighty per cent of developed countries and thirty-five
percent of developing countries feature some form of private sector participation in water and
sanitation service provision (Prasad, 2006). In developing countries alone, the total amount of private
actor investment over the last two decades has amounted to 64 billion US dollars, according to the
World Bank estimates (2012). Second, even if the role of private actors in the growth of the industry
has been paramount, it has also been surrounded by important political and social debate, based on
divergent ideological
perspectives (water as an “economic good” or “basic human right”), and
witnessed considerable controversy as regards the private actors’ performance (Barlow & Clarke,
2005; Budds & McGranahan, 2003).
Moreover, the chosen setting serves particularly well to study the effects of environmental
uncertainty on partnership governance, as it embodies a highly heterogeneous set of underlying
institutional environments and governance arrangements. While on one hand, there is a high
prevalence of traditional, autonomous forms of engagement, such as concessions; on another hand,
integrative arrangements, based on shared activity, public sector revenue or joint public-private
3
Developing countries, in the context of this study, are understood to correspond to low- to middle-income
countries, as classified by the World Bank (2012).
20
ownership, such as management contracts, are also increasingly common. In terms of external
environment surrounding each public-private exchange, there is a considerable variation in both the
degree of institutional uncertainty organizational actors face (see, for example, Savedoff & Spiller,
1999), as well as the degree of market development, allowing us to tackle different facets of
environmental uncertainty in testing their effects on hybrid governance structures and their longevity.
As our primary source of data, we use the World Bank Private Participation in Infrastructure
database (The World Bank PPI Database, 2012) - one of the few authoritative public data sources
available on public-private engagements in public infrastructure, such as energy, telecommunications,
transport and water, worldwide. The data on the water sector, specifically, cover potable water
treatment and distribution as well as sewage collection and treatment projects, with total records on
more than seven hundred public-private water utility projects that have reached financial closure in
sixty two low-to-middle income countries over the period of 1990-2011.4 The database covers
infrastructure projects that meet the World Bank private participation criteria, i.e. where there is
substantive private actor engagement in the project through private actor bearing a share in project’s
operating risk, and private sector taking at least a certain minimum part in ownership or management
(with a minimum private ownership threshold in the project company set at 25% for greenfield, and
management and lease contracts, and 5% in the case of divestitures)5. Data on each observation
include information on project identity, financial closure, type and structural form of private
participation, sector and service details, key contract terms, status, details on main investors or private
partners, government or development bank support, as well as overall project history. The database is
updated every year via a review of secondary publicly available sources, such as specialized
publications, private actor, public actor and multilateral agency websites (for more information, see
"The World Bank PPI Database: Extended Methodology", 2007).
4
The World Bank PPI dataset has been use in prior studies on private participation in water industry, and the
underlying contractual choices, albeit, from different theoretical perspectives (see Zarco-Jasso, 2010).
5
Projects that do not meet private participation criteria and, hence, are not part of data set include public
procurement related activities such as supply, technical assistance and civil work contracts, subcontracting of
individual activities, engineering or training service contracts, and turn-key or construction contracts (The
World Bank PPI Database, 2012).
21
Even if comprehensive, the data on many instances are incomplete, hence, for the purposes of this
study, we draw on various secondary information sources, such as company news reports and
websites, as well as other public (e.g. World Bank) and private databases (such as Global Water
Intelligence, Orbis, Factiva). More specific data sources used for different project and country-level
variables are highlighted in the section below.
The total set of records obtained from the dataset cover public-private partnerships in water
management and supply in 62 developing countries over the period from 1991 to 2011. The twodecade time span covers both the nascent and principal period of global surge and saturation in
private-public partnerships in the sector, which begun to be systematically implemented as a public
policy tool from the early 1990s. For our final sample, however, we apply a number of restrictions on
the full World Bank PPI dataset. We exclude public-private projects in China to avoid a bias due to
their large overrepresentation in the total sample and very specific profile (almost half of projects
reported in the World Bank PPI database are in China, and of those, 90% are on treatment plants). We
likewise exclude projects that during the observation period underwent substantial changes in
structural form and/or private ownership share, or for which substantial part of information on project
is missing or incomplete. The final sample consists of 271 observations in 54 countries (further
restricted depending on data availability, see the descriptive statistics later on), pooled across time
(1991-2011), with the unit of analysis being each individual public-private partnership project.
Dependent Variables
Governance form. Public-private ties in international water industry are characterized by an array
of structural arrangements, varying extensively along the ownership, financial and operational models
as theoretical dimensions described earlier. Four broad types of empirical arrangements are
identifiable in the World Bank PPI dataset (based on "The World Bank PPI Database: Extended
Methodology 2007"): 1) management contacts, 2) affermage or lease contracts, 3) concessions and 4)
divestitures (see Table 1 for more detailed overview of each type).
------------------------------------------------Insert Table 1 about here
------------------------------------------------22
Management contracts involve asset management and operations by private operator in return for
a fee paid by the public actor, either fixed or variable, tied to the fulfilment of certain performance
criteria. Investment responsibilities, operational and financing risks are under the realm of public
authority, who is formally responsible for service provision.
In Lease (or affermage) contracts private operator operates and manages service provision,
including the revenue collection from end customers. In both affermage and lease contracts, however,
it is the public authority, who is responsible for investments in infrastructure, and coordinates it in
conjunction with a private operator. Because of their fundamentally similar features, both lease and
affermage contracts are often classified together, the difference being a technical one – under lease
contract, private operator collects the revenue and makes the lease payment to public authorities, while
under affermage, the revenue collected by private operator is shared with public authorities and an
affermage fee is paid on the basis of demand and customer tariffs ("The World Bank PPI Database:
Extended Methodology 2007"):.
Concessions are a broad category of public-private arrangements that provide private operator
not only with full operational responsibilities, but also with investment management and financing
duties. Concession type of contracts are often split in a further subset of technical categories,
depending on the division of investment tasks and specific ownership rights characterizing each type
of arrangement. Typically, in concession arrangements private actor is relatively autonomous in
running the full set of operations, whilst public actor retains the legal title to underlying infrastructure
asset ownership and supervision. Within the concession category, we also include greenfield
arrangements, in which new infrastructure is built by private operator (as opposed to overtaking an
existing public one), privately owned and operated on a temporary or permanent basis.
At last, divestiture corresponds to arrangements that, instead of relying on specific contractual
structures that split operational tasks or divide up property rights between public and private sector,
transfer those fully to private sector. Partial divestiture corresponds to public sector retaining a stake in
ownership, while full divestiture corresponds to a complete privatization. Because divestitures
correspond to close-to-full privatization model and are a different type of arrangement than the public-
23
private contractual forms covered above (being close to the case of regulated utility privatization), we
treat them as a separate type of arrangement and exclude the (relatively few) divestiture cases reported
in the original dataset from the present analysis.
For the purposes of the present study, we, first, identify and position each empirical partnership
category - management contracts, lease or affermage agreements, and concessions - along the three
dimensions of theoretical public-private governance forms (as identified earlier), depending on the
extent to which the empirical category exhibits the features of two theoretical extremes - “integrative”
versus “autonomous” governance forms. The overview of the theoretical forms as well as
corresponding empirical arrangements are provided in Figure 2.
------------------------------------------------Insert Figure 2 about here
------------------------------------------------In terms of operational model, following the theoretical model prescriptions, public-private ties
are integrative when they exhibit joint or shared operational responsibility and, as autonomous, when
the operational and managerial responsibility is predominantly private. On the basis of this approach,
concessions represent autonomous, while management and lease (as well as affermage) contracts –
integrative public-private governance forms.
In terms of financing model, following the theoretical model prescriptions, public-private ties
take on an integrative form when the revenues are derived from public sector payments, and
autonomous when they are end-user payment based. On the basis of observed empirical form
characteristics, we, accordingly, identify concessions as well as lease (and affermage) contracts as
representing autonomous governance form, while management contracts – integrative governance
form.
In terms of ownership, the empirical identification is more complex as the theoretical model does
not explicitly discriminate among different types of property rights that can be associated with the use
and exploitation of underlying core asset (such as the right to use the infrastructure or to alienate it),
and the underlying rights to residual from this asset (i.e. rights to derive rents from the operations and
asset use). As empirical evidence shows, these rights may often be split, for example, when a private
24
actor owns the equity to underlying project company exploiting the infrastructure asset, yet, is not the
legal holder of the asset, not entitled to sell or modify it. We address this issue by identifying two
forms of ownership – core asset and equity-based ownership (for the underlying project company).
Public-private engagement is then assumed to be integrative, if core asset (infrastructure) ownership
rights are predominantly public (or shared), while autonomous if those are predominantly or
temporarily private. Applying this approach to our empirically observed partnership types,
concessions fall under the autonomous form, while management, lease (and affermage) contracts –
under integrative theoretical form. In terms of equity based ownership (in underlying project
company), by contrast, we assume the higher the private equity stake in underlying project company,
the more the engagement falls under autonomous public-private governance form.
Adopting the approach above to map and classify the types of public-private arrangements that
we observe in our empirical setting to matching theoretical governance forms (Figure 2), we arrive at
two different constructs for public-private governance form as our dependent variable (for H1-H3):
1) an ordinal dependent variable, when coding all the governance arrangements on an ordinal
scale, corresponding to 0 for integrative arrangements, 1 for “mixed” cases such as lease and
affermage contracts - as in this case properties from two theoretical governance modes are present,
and 2 for autonomous cases (see Figure 2 and Table 1);
2) a continuous variable (between 0.25 and 1), when coding the empirical arrangements on the
basis of the share of private partner equity ownership in the project company (varying on the case-bycase basis), with lower private equity shares corresponding to integrative model and higher ones – to
autonomous.
In the light of data available, these two approaches allow us to capture different empirically
observable dimensions of integrative versus autonomous governance modes. The ordinal variable
allows us to capture the differences among the types of governance based on operational model, along
with financing model (to the extent we can derive it from the generic contractual forms), and asset
ownership model. The second, continuous variable specification, by contrast, looks at the variation in
governance forms based on the overall distribution of private residual claimant rights in the project
25
company under each public-private arrangement. It, hence, provides us with an alternative property
rights based measure of the variation in-between the integrative versus autonomous governance types.
Longevity. To test Hypothesis 4, we operationalize our dependent variable – the longevity or
duration of observed public-private ties as, first, a dummy variable (=1, if the relationship does not
survive and goes under distress during the contractual/observation period). We define the project to be
distressed when either of the following substantial changes to public-private project take place: 1) the
project is cancelled or revoked with private actor selling, transferring or losing its stake before the
intended end of contractual period and ceasing operations, or 2) one of the partners have requested
(unexpected and major) renegotiation, termination or called in international arbitration. We obtain this
information from the project status report in the World Bank PPI database (updated on the yearly
basis). This approach, hence, regards the longevity as the extent to which the underlying pre-defined
contractual length (being, on average, more than twenty years for the contracts in our sample) is
respected.
We also capture the actual duration term, that is the number of years between the formation of
public-private engagement and 1) the moment it goes under distress or expires, or 2) the end of
observation period (right-censoring), whichever happens first. The latter approach, used in the survival
analysis, is commonly applied, for example, in the testing longevity in inter-firm relations literature
(see, among others, Barkema, Bell, & Pennings, 1996; Barkema, Shenkar, Vermeulen, & Bell, 1997).
Independent Variables
Political Uncertainty. In measuring the degree of feasibility of policy change (i.e. the degree of
political constraints) we rely on the political constraints index (POLCONIII), as developed by Henisz
(2002), and made available in the POLCON database latest (2010) release.6 This measure, using an
approach similar to the World Bank institutional “checks” index (Keefer & Stasavage, 2003), uses the
number of veto players, i.e. the number of independent players in government (executive, lower and
6
The latest POLCON database release (2010), which we use (available from http://wwwmanagement.wharton.upenn.edu/henisz/) covers the data on political constraints for majority of world’s
countries for the period from 1818 up to 2007 (including). For observations that fall within in the subsequent
2008-2011 period, we apply the latest POLCON value available (from 2007).
26
upper legislative chambers), to assess the likelihood of policy change of independent branches of
government. It is estimated, as originally developed by Henisz (2002: 363), on the basis of data from
political science databases, by identifying the number of independent branches of government
(executive, lower and upper legislative chambers) with veto power over policy change in up to 160
countries (for every year since 1800). This measure is further modified to account for the alignment in
party composition across these branches, and the degree of preference heterogeneity in legislative
chambers, expecting these factors to drive up the costs of policy change.
The resulting measure (varying between 0 and 1, with 0 characterizing political environment with
virtually no constraints, hence, a high likelihood of policy change, and measures closer to 1 signifying
high degree of constraints, i.e. low feasibility of policy change) provides similar results to World Bank
political risk measures (Keefer & Stasavage, 2003) and has been repeatedly used as a measure of
institutional environment uncertainty in previous political economy and firm strategy studies (see, for
example, Henisz & Delios, 2004; Henisz & Zelner, 2006; Zelner, Henisz, & Holburn, 2009).
Social Volatility. As a proxy to social uncertainty we define and use a notion of social volatility the feasibility and variation of social contestation or dispute in underlying (public-private) exchange
context. We, first, note that to operationalize this variable, two different approaches can be applied.
One is based on the event-study approach, commonly used in the studies of social movements, and
consists of assessing the number of historical social contestation events in the industry, through
recording, for example, events reported in newspaper records (Earl, Martin, McCarthy, & Soule, 2004;
King & Soule, 2007). Unfortunately, this approach is not easily adaptable in the context of the present
study as there are limited secondary data available on social contestation events in many developing
country contexts, and, moreover, many of public-private arrangements observed represent one of the
first private actor engagements in the given country’s water sector, limiting, hence, existence of prior
events in industry to rely on in constructing this measure7. Another approach, that we rely on in the
present study, is to gauge the degree of variation or polarization in opinions, such as the degree of
7
We do assess, as alternative measure of social volatility, also the effect of a certain key or landmark social
contestation event on global industry worldwide – such as the „water war” in Cochabamba, Bolivia in 2000,
which having obtained wide global publicity appears to have triggered many of the subsequent anti-private water
movements and rise of anti-private water sentiments in developing country context, in particular.
27
“anti-private sentiment”, as a proxy or precursor condition to social volatility in a given public-private
exchange context. This view is supported, for instance, by DiMaggio et al. (1996), who identify
opinion polarization as a key causal mechanism to both political conflict and social volatility.
To construct our country-level measure of social volatility we rely on the World Values Survey
(WVS) – a unique global dataset tracking the beliefs and value statements of individuals, and changes
in politico-social and economic attitudes in close to 100 world countries since 1981. Carried out
through national surveys and based on a harmonized global questionnaire, it contains data in the form
of repeated cross-sections on five consistent waves of surveys, corresponding to 1981-1984, 19891993, 1994-1999, 2000-2004 and 2005-2008. In constructing the exact measure on the basis of these
data, we draw on the work by Landier, Thesmar, & Thoenig (2008), who construct a pro- or anticapitalism sentiment measure on a basis of selected questions in the WVS survey. We use the survey
responses on the question on private ownership, specifically, to construct a variable reflecting the
extent of “private participation/ownership” aversion in each country observed. In answering this
question, respondents grade the merits of private versus public (government) ownership on a scale
from 1 to 10, selecting their preferred statement between the two extremes: “Private ownership of
business and industry should be increased” (1) and “Government ownership of business and industry
should be increased” (10). We construct a variable on the basis of percentage of respondents selecting
grade 5 and above (following Landier et al. 2008 methodology). The higher the score in the time
period corresponding to the public-private engagement founding year, the higher, we deem, the antiprivate engagement sentiment prevailing in a given country, and the higher the likelihood of social
protest following the private sector engagement in public infrastructure services.8
Unfortunately, as the World Values Survey is available only for 26 of 54 countries represented in
our dataset, we, accordingly, use this subset of countries and a restricted sample of observations
(n=148) in our estimations that rely on social volatility variable. Our sample is likewise restricted by a
deliberate decision to minimize the possibility of a reverse causality, i.e. changes in the public opinion
8
We acknowledge that our measure represents an imperfect proxy for social volatility, able to capture the
prevailing opinion polarization, yet, not the propensity of organized social action or movement to arise on the
basis of these opinions. Developing a more elaborate measure to address this concern, particularly, in the
developing country context, remains an important task for future research.
28
following the establishment of a given public-private arrangement in each country. To avoid this
concern, we use for each observation only the survey data that corresponds to the last, lagged wave of
survey (i.e. the year or maximum up to five years) before the date of project signing.
Market-Based Volatility. Our measure of market-based volatility has to take into account the type
of demand-related variation water and sanitation sector is likely to experience, particularly, in the
developing market context. As such, the demand in volume terms can be argued to be relatively
predictable (given the required base level of water consumption per capita that is expected to exhibit
little variation). Yet, the actual chargeable and payment-based demand estimates may be hard to
derive, in particular, as many of developing countries experience high proportions of population with
low purchasing power and existing water infrastructure of low quality, resulting in large proportions of
loss or leakage, high levels of non-payment, as well as measurement and control problems of the
actual volumes consumed. In the light of these characteristics, we predict that market uncertainty
(volatility) is likely to be substantially higher for water utility infrastructure rather for stand-alone
engagements, such as treatment plants, due to underlying complexity and wide-spread service delivery
network for former services, and their demand-based dependence on a wide base of end-users (rather
than on a more limited range of utility buyers, as in the case of treatment plants). Accordingly, we
introduce a dummy variable, taking the value of 0 for public-private engagements in treatment
services, and 1 for utility (i.e. network-based) services. This measure, while relatively crude,
nevertheless allows us to proxy for the extent of variance underlying the demand for water and
sanitation services, absent a possibility to observe this variance directly. 9 It also follows the approach
adopted in a number of prior studies that have applied industry subsector proxies to account for
underlying transaction uncertainty (Kumar, 2005; Masten, Meehan, & Snyder, 1991).
Governance Misfit. To measure the extent to which the actual governance form selected under
each public-private engagement corresponds to the most optimal choice in the light of underlying
market-based, political and social contingencies, we rely on a methodology of estimating the degree of
9
Because of the lack of relevant past demand data on each project level, we are not able to estimate market or
demand-based uncertainty by a more commonly used method that measures the sum of squared errors from a
regression of the relevant product-market’s historical unit demand over a certain number of years preceding the
engagement (e.g. Leiblein et al. (2002)).
29
conformity or governance alignment used in prior studies in transaction cost economics (Leiblein et
al., 2002; Nickerson & Silverman, 2003; Silverman et al., 1997). The approach, drawn from
Anderson’s (1988) work on conformity, relies on estimating the probability that another governance
form may be more appropriate given the contractual (or, in our case – broader environmental or
institutional) hazards, and uses the residual between the actual governance structure and that predicted
by the estimation as the measure of governance misfit for each individual observation. For this
estimation, we rely on our first, operational governance model as the dependent variable specification,
retaining the three ordered categories (integrative, mixed-case, and autonomous).
The first step is to estimate the likelihood that a specific governance form (e.g. autonomous) will
be chosen as a function of environmental contingencies identified earlier. We follow an approach
similar to the one proposed by Leiblein et al. (2002), who in a binary case analysis, first, estimate the
most likely value for autonomous governance choice by the following probit model:
Prob (Yi = 1) = Φ (β'Xi)
were Yi stands for the governance choice for the ith observation, Xi represents a vector of
characteristics for the underlying relationship (corresponding to underlying contingencies, in our
case), β is a vector of estimated coefficients for these characteristics, and Φ(.) stands for standard
normal cumulative distribution function. Then, the governance misfit for each observation is estimated
as the absolute value of 1 - Prob (Yi = 1) when governance choice equals 1, and Prob (Yi = 1) when it
equals 0. We adjust this approach to our case of dependent variable with three ordered outcomes, by
estimating an ordered probit model and measuring the governance misfit for each observation as Prob
(Yi = 2) + Prob (Yi = 1) when governance choice equals 0 (i.e. integrative), 1 - Prob (Yi = 1) when it
equals 1 (i.e. mixed) and 1- Prob (Yi = 2) when it equals 2 (i.e. autonomous). The higher the value, the
higher the estimated degree of misfit of the adopted governance form.
30
The vector of characteristics that we keep in the ordered probit model are political constraints
index, dummy for local project level and interaction term, the proxy for social volatility, dummy for
water utilities, as well as two controls for size (capacity) and contract length.10
Controls
We introduce two types of control variables: 1) country-level controls (particularly, as we cannot
control for country fixed effects having instances of only one observation per country), and 2) projectlevel controls, corresponding to the specific characteristics and features surrounding each individual
project.
Country-level characteristics. We control for the overall demographic characteristics and
economic development level of each project country by including GDP per capita and GDP annual
growth rate measures, population size (in millions of inhabitants), and population density measures, all
drawn from the World Bank Development Indicators database. We further account for the level of
democratic development in each country, using the political liberties measure from the Freedom
House, a nongovernmental research institute on worldwide democracy, political freedom and human
rights development. To account for the degree of potential (positive) externalities surrounding the
project, we include three measures corresponding to overall water sector development in the country,
as reported by the World Health Organization/UNICEF Joint Monitoring Program for Water Supply
and Sanitation – 1) the percentage of population with improved water source, 2) the percentage of
population with improved sanitation access, and 3) the percentage of piped water to premises. These
measures allow us to capture the degree to which public-private governance choices and stability of
public-private engagements may be affected by the need to address underlying, potentially
uncompensated deficiencies in the existing water provision system in a given country. We also
account for at least two specific geographical country-level conditions likely to significantly affect
water sector development, project complexity and infrastructure project viability – the degree of
agricultural development (agricultural land as percentage of total land area) and the presence of
extreme conditions, estimated as the average percentage of population affected by droughts, floods
10
We set and verify this specification after testing the ordered probit models for H1-H3 (see Table 3 and the
discussion in the Results section).
31
and extreme temperature over the period of 1990-2009. Both of these measures are obtained from the
World Bank Development Indicators database.
Project-specific characteristics. We control for a number of individual project-specific
characteristics expected to affect the governance choice and longevity of underlying public-private
engagement, such as the contract length (in years), project re-award (a dummy), the number of
independent infrastructure systems in each project (as a proxy for project complexity) and presence of
related projects (a dummy). We likewise include a dummy variable for project subsector being related
to potable water treatment, delivery or distribution. To control for the characteristics of each project in
terms of administrative or politico-institutional level, we include a dummy for government partner
being on the local level as opposed to state or federal level. We also account for the degree of
governmental support and multilateral financing (such as development bank loans) provided to the
project, by including an ordinal variable for government support, such as payments or guarantees, and
an indicator of the size of multilateral support granted to project (in millions of USD).
We include a number of control measures related to the private actor(s) engaged in the project. To
control for potential “consortium” effects, we include a count of a number of private partners involved
in the project (ranging from 1 to 5). To account for the potential effects of “liability of foreignness”
and well as, conversely, advantages tied to having a local player on private actor side, we include a
dummy variable for the presence of at least one foreign private partner among private actors engaged
in each project, and a dummy variable for a presence of at least one local-country partner among the
private actors engaged in each project. We control for project commitments and investment size by
including data on the amount of financial resources committed by the project company to be invested
in facilities at the time of project signing. We also devise a specific, ordinal scale based measure to
control for the project capacity (size). Given that the capacity for all projects in the World Bank
dataset is reported in three different terms, such as population served, number of connections or cubic
meters per day of output, we cannot use a unified, single measure, and devise, instead, a three point
scale to account for smaller, medium and large scale projects (a similar approach is applied in
intrafirm studies, see, for example, Krishnan et al., 2006).
32
Unfortunately we have limited information on the competitive environment (such as the number
of bidders) in each project and private partner selection process, except for an indication if the project
was awarded through a competitive process, such as competitive bidding or negotiation, or other
approach, such as direct negotiations or unsolicited proposal. To control for competitive intensity, we,
hence, include a “competitive award” dummy, equal to 1 for projects where public-private contract
was awarded through competitive bidding or competitive negotiations process. At last, we also
introduce two controls to account for effects that may introduce changes in governance structures over
time, measuring the industry-level average dominant governance choice, in both operational model
and private equity participation terms, for each year of the study. As such, this approach is adopted
from that of Guasch, Laffont & Straub (2007), who in their study on the likelihood of infrastructure
contract renegotiations in Latin America used the prevailing governance choice in the industry in a
given year as one of estimation variables, assuming it to influence the governance choice in each
individual case.
------------------------------------------------Insert Table 2 about here
------------------------------------------------We provide an overview of summary statistics (means, standard deviations, minimum and
maximum values, as well as correlations) on our dependent variables, explanatory variables and the
full set of controls in Table 2.
Estimation Methods
The first part of our theoretical model (H1-H3) is based on the probability of public-private
governance choice being influenced by different types of exogenous environmental uncertainty. We
use an ordered probit model for our first dependent variable specification - the operational governance
model set as three ordered categories (integrative, mixed and autonomous). The estimated coefficients
capture the impact of three different types of environmental uncertainty or contingencies on the
probability of increasingly autonomous governance choice. As such, our chosen estimation method
follows previous studies on governance choice in inter-firm context (see, for example, Leiblein et al.,
2002; Oxley, 1997; Pisano, 1989).
33
For our second dependent variable specification (again, to test H1-H3), based on the distribution
of residual claimant rights (i.e. private equity share in the project company), we use a different
estimation method. Given the proportional nature of this dependent variable and a non-trivial number
of responses of 1 (i.e. full private ownership cases), we note that estimation methods, such as OLS
regression or tobit, may not appropriate. We apply, instead, the approach recommended by Papke &
Wooldridge (1996) on fractional response variables, and use a generalized linear model (GLM) with a
logit link and the binomial family specification (with robust standard errors in case of misspecified
distribution family) (STATA Corporation, 2004) for this estimation.
To test the second part of our theoretical model (H4), focused on the impact of governance
(mis)fit on partnership longevity, we apply, first, a probit regression, using as a proxy to longevity the
dummy specification of our dependent variable (corresponding to 1, if the partnership undergoes
distress during the observation/contractual period, 0 otherwise), and estimating, hence, a probability of
public-private project going under distress as a function of governance misfit and a range of
covariates. We note, however, that to assess the impact of governance on longevity or duration,
several methodological concerns remain not addressed with this method, related to potential selfselection and omitted variable bias, as well as right-censoring of our data. As an alternative, additional
robustness check we, hence, also apply a survival analysis based methodology, using an accelerated
failure time regression method to estimate the effects of our independent variables and covariates on
the expected duration of public-private ties. This approach, increasingly common in inter-firm
collaboration and foreign entry survival studies (see, for example, Barkema et al., 1996; Barkema et
al., 1997; Dussauge, Garrette, & Mitchell, 2000; Hoang & Rothaermel, 2010; Mitchell, Shaver, &
Yeung, 1994), provides several advantages over logit (or probit) regressions as well as
more
traditional proportional hazard rate based survival methods (such as Cox regression). As Mitchell et al.
(1994) argue, accelerated failure time technique is equivalent to an inverse measure of exit likelihood,
however, compared to techniques such as logistic regression is able to account for different entry dates
of observations and right-censoring. Moreover, compared to proportional hazard rate models (such as
Cox regression), accelerated failure time models are more robust to omitted covariates, and hence
34
better fit to deal with endogeneity and unobserved heterogeneity concerns (Hoang & Rothaermel,
2010), even if selection problems may remain also in these models. Similar to a number of prior
studies (Barkema et al., 1996; Barkema et al., 1997), we use an accelerated failure-time model with a
Weibull distribution, which assumes a monotonic hazard rate (we come back later to this assumption
in the Results section).
At last, we note that the use of both types of approaches for longevity or duration studies are
justified and supported by prior literature: logit or probit type of estimations represent widely used
method focussing on the probability of a discrete outcome occurrence, while accelerated failure time
techniques assess the effect of explanatory variables on the duration of time before an outcome
(failure) takes place and take into account the right-censoring (Dussauge et al., 2000).
RESULTS
Environmental Uncertainty and Governance Choice
Our first three hypotheses dealt with the effects of three different facets of environmental
uncertainty – the degree of political constraints (H1), social volatility (H2) and market-based volatility
(H3) – on the type of public-private governance structure selected by the involved actors. We estimate
these effects by using two different measures of public-private governance form, first, a measure
related to the operational model (with an ordering of integrative, mixed and autonomous forms) and,
then, the proportional split of residual claimant rights among the public and private actors (i.e. the
proportional share of private equity in the public-private project company – a higher proportion
interpreted as a higher degree of autonomous governance).
We first test Hypotheses 1-3 by focusing on the dependent variable specification based on the
operational model, and performing an ordered probit analysis (see Table 3). We start by performing a
more restricted test on control variables to assess the preliminary model specification (Model 1). We
note several of the project-related characteristics as bearing a significant impact on the likelihood of
adopting an autonomous governance structure – increasing contract length, re-awarded project,
increasing government support augmenting the likelihood of more autonomous governance structures,
35
and by contrast, projects with potable water services, higher capacity and related projects bearing a
lower probability of autonomous form selection. In Model 2, we introduce our explanatory variables,
related to three different measures of environmental uncertainty, and find support for Hypothesis 3 on
the negative association between market-based uncertainty and autonomous governance with the
coefficient on utility services negative and significant (at 5% level). Neither political constraints nor
social volatility measure, however, show a significant effect. In Model 3, we refine our approach by
recognizing that the effect of political constraints on the public-private governance form is likely to be
conditioned by the type of politico-institutional or administrative level on which the public-private
collaboration takes place. We, accordingly, introduce an interaction term between the degree of
political constraints and the project level (local versus state or federal), and obtain significant results
for both main effects as well as the interaction term. Hypothesis 1, then, is indirectly supported
(following an inverse logic) with a higher degree of political stability (more constraints) found to be
associated with a reduced likelihood of selecting an autonomous governance structure (at 10%
significance level). We also note that the local project level is associated with a reduced likelihood of
autonomous governance choice, and that the interaction term is significant (its exact effect depending
on the other covariates).
------------------------------------------------Insert Table 3 about here
------------------------------------------------We further refine the model (Model 4) by introducing our second, alternative governance measure
(i.e. private equity share) as additional control to assess the robustness of the model. We also introduce
an additional control for the time effects and potential governance mimicry effects by including the
industry dominant governance choice (in a given year) as additional control. We observe that the
results do not change – retaining the predicted signs and significant effect for political constraints (H1)
and market-based uncertainty (H3). The effect of private equity share is not significant, while the
implicit hypothesis on the influence of dominant industry governance form is supported – the more
dominant are autonomous structures in industry in a given year, the higher the likelihood of
36
autonomous structure for a given project. At last, we note that Hypothesis 2 on the impact of social
volatility on governance structures is not supported in any of the models.
We proceed with our second dependent variable specification - a measure based on the private
equity share, and estimate the effects of three explanatory variables on the degree of autonomous
governance choice through a generalized linear model (see Table 4). We note that Models 1 and
Models 2 (based, similarly as above, on restricted controls and main effects specification) represent
rather weak specifications, with only re-awarded projects showing a significant association with a
higher degree of private actor residual rights in the underlying project (i.e. higher share of private
equity). Introducing the main effects and interaction effect between political constraints and the
project level (Model 3), however, provides again an indirect support for Hypothesis 1, with a
significant (at 5%) negative association between the level of political constraints (i.e. political
stability) and the proportional share of equity in project company held by private actors. The effect of
administrative level of project is, again, significant (at 1%) and negative, illustrating that the contracts
signed on local level are likely to feature a smaller proportion of private equity (higher degree of
public actor equity participation).
------------------------------------------------Insert Table 4 about here
------------------------------------------------Similar to the first dependent variable specification, the negative relationship implied in
Hypothesis 1 (between the degree of political constraints and increasingly autonomous governance
choice) is also supported in the extended model (Model 4), which controls for alternative (operational
model) governance specification, and industry-dominant governance trend. However, neither
Hypothesis 2 (on social volatility) nor Hypothesis 3 (on market-based volatility) are supported in any
of the models that rely on private equity share-based governance specification.11 In terms of control
variables, we observe that the positive and significant effect is retained for re-awarded projects. In
addition, contract length is negatively and significantly associated with private equity share in Model 4
11
As an alternative proxy to social volatility we also test for any effect of potential landmark event (arrangement
being signed pre or post the highly publicized Cachabamba „Water wars” in 2000), however, the effect is not
significant.
37
(whilst found to be significant and positively associated with autonomous operational governance
mode earlier).
Governance Misfit and Longevity of Public-Private Ties
Our last hypothesis (H4) suggests a potentially negative effect of public-private governance
misalignment (misfit) on the longevity or duration of public-private ties. We hypothesize that the
greater the governance misfit in relation to market-based, political and social contingencies
characterizing the exchange environment, the shorted the public-private relationship lasts, from
moment of establishment to a distress point (i.e. early “freeze” or premature termination) at any
subsequent point in time. In the first set of tests, we assess this hypothesis through a probit regression
analysis, with the longevity dummy as a dependent variable (see Table 5).
Model 1 represents a base-line model with project-level controls and a selected number of
country-level characteristics, which are expected to influence the longevity of public-private ties. In
Model 2, we include the variable specifying the operational governance form to test if any operational
model type is per se associated with a higher likelihood of distress affecting the duration of the
underlying relationship. The effect of this variable, however, is not found as significant. In Model 3,
we also test, if a mixed governance form, as opposed to “pure” (i.e. autonomous versus integrative)
cases, may also feature any adverse effect of the longevity of underlying public-private ties.
Interestingly, the coefficient is positive, even if the effect falls short of reaching a statistically
significant level (at 11%), suggesting that intermediate forms between the autonomous and integrative
structures may be inherently less viable. In Model 4, we introduce the degree of governance misfit as
explanatory variable, and obtain a strong support for Hypothesis 4, with governance misfit positively
and significantly (at 5%) linked to a higher likelihood of underlying public-private engagement facing
earlier distress, termination or cancellation.
------------------------------------------------Insert Table 5 about here
-------------------------------------------------
38
We also highlight noteworthy results on several control variables, particularly in Model 4.12
Interestingly, while adopting an autonomous operational model (our first dependent variable
specification) does not appear to impact the longevity of public-private relationship, an increasing
private share of equity (i.e. increasingly private residual rights) is linked to a higher likelihood of
partnership becoming distressed (at 1% in Model 4). As expected, the duration of the public-private
relationship is negatively linked to the probability of distress. We find consistently significant and
positive effect for multilateral financing (suggesting a financial leverage effect) and, in Model 4, also
for a number of private actors (suggesting a consortium effect), with both of the factors appearing to
adversely impact the likelihood of partnership longevity. The presence of a foreign private actor is not
found to have a significant effect in Model 4, while the presence of local actor appears associated with
a slightly reduced distress likelihood (at 10%) in Model 4. We also find larger capacity projects to be
more likely to last longer (at 5%), again, however, in Model 4. And at last, in terms of country level
effects – the results suggest a higher GDP growth rate is consistently linked to higher public-private tie
longevity, while, inversely, the share of agricultural land area – to a greater likelihood of distress.
To test our hypothesis on the effect of misfit on public-private tie duration, we also carry out, as an
alternative robustness check, a survival methods based estimation, specified as an accelerated failure
time model. As mentioned earlier, use of parametric models (i.e. accelerated failure time models)
differs from more traditionally used methods in duration and survival analysis by implying a specific
assumption about the shape and type of underlying hazard rate distribution function, and by estimating
the effect of main variables and covariates on the latent survival time (hence, mandating an inverse
interpretation to our previous model – with negative coefficients indicating negative effect on duration
or survival time). Following a number of prior studies in alliance and foreign entry literature (Barkema
et al., 1996; Barkema et al., 1997; Mitchell et al., 1994), we use an accelerated failure time (AFT)
model with Weibull distribution that assumes a monotonic (declining or increasing) hazard rate over
time.
12
We do acknowledge that results on certain variables in Models 1-3 require caution (change signs and
significance), and retain Model 4 as a more relevant model specification.
39
The results of this regression model, however, prove to be substantially less conclusive than those
of the previous estimation (see Table 6). Replicating Models 1-4 through AFT methods estimation, we
find that governance misfit retains an adverse effect (signified by a negative coefficient in AFT model
case) on the governance longevity or (survival duration), however, the effect is not statistically
significant. Interestingly, presence of multilateral financing has a consistently negative significant
effect on partnership duration, same as the foreign actor presence (except for Model 4). The intuitive
insights on the role of host country growth rate impact on survival are also supported by GDP growth
rate showing a consistently positive and significant effect on the underlying public-private tie duration.
------------------------------------------------Insert Table 6 about here
------------------------------------------------Recognizing that the estimation of a parametric model may be complicated by a need to make a
correct assumption about the underlying distribution function, we do test alternative distribution
specifications (such as log-logistic and lognormal – not reported in the paper), and find that Weibull
specification may be retained on the basis of slightly smaller value of Akaike’s Information Criterion
(AIC) - suggested in the literature as a measure to distinguish among different parametric models
(Burnham & Anderson, 2002). We do note, however, that the differences in AIC scores are small, and
that the generally small final sample may not provide sufficiently robust assessment of the fit with
underlying tested distribution models. Likewise, due to relatively small number of observations, we
are not able to use the generalized gamma distribution, which, as highlighted by Dussauge et al.
(2000), represents a particularly useful, broader form of accelerated event-time regression by
estimating both monotonic and nonmonotonic event rates (corresponding to a family of several
distributions) as well the effect of omitted covariates. Overall, we conclude that to improve the
validity and robustness of our estimates, particularly, in terms of survival analysis, increasing the
sample of observations (currently limited to 244 observations in Models 1-3 and only 154 observations
in Model 4, with 12-13% of failure rates among them)13 may be necessary.
13
This restriction in the final number of observations is driven by a number of missing data for our principal
„governance misfit” variable, which itself is constructed by combining several underlying dimensions (and, as
such, affected by a lack of data on all required dimensions for a number of observations).
40
DISCUSSION
In the present study, we build on nascent theoretical insights on public-private ties as a novel type
of hybrid governance arrangements, to examine how exogenous environmental uncertainty, in a form
of distinct market and institutional environment based contingencies, affects the selection of publicprivate governance mechanisms and the longevity or duration of underlying ties. By differentiating
between political, social and market–based facets of environmental uncertainty, we propose and find
support for our core argument that alternative forms of public-private as hybrid governance
arrangements co-exist with each alternative structure selected to differentially address the type of
contingencies surrounding the underlying exchange. Based on the empirical context of public-private
water sector engagements in the developing world, our findings illustrate that organizational actors –
and private actors, specifically, operating in these environments, may be able to adjust and
intentionally adapt public-private governance structures and individual features in the light of
underlying environmental hazards. These insights counter more established views in organizational
and strategy literature that generally recognize hybrid arrangements as ill suited for high-uncertainty
environments (Folta, 1998; Williamson, 1991) – particularly, for politically hazardous ones (Henisz,
2002; Levy & Spiller, 1994; Spiller, 1993), and assume all hybrid arrangements to exhibit a uniform,
intermediate variation in underlying governance features (Williamson, 1991; Williamson, 1999).
Moreover, our empirical findings on the longevity of public-private ties (even if inconclusive in
the second empirical specification), serve to illustrate the potential impact that a structural alignment
with institutional environment characteristics, not just transactional features, may carry on the
subsequent duration or survival of these engagements. Highlighting political uncertainty and social
volatility as two distinct sources of contingencies stemming from broader institutional environment,
we show that, along with market-base ones, they mandate a selection of divergent governance
features, and through governance (mis)alignment affect the duration of underlying organizational
arrangement.
Overall, our work delivers three principal contributions. First, by investigating empirically the role
of environmental uncertainty as a critical, multi-faceted factor affecting both ex ante public-private
41
governance preferences and ex post longevity of underlying relationships, we contribute to growing
theoretical insights on the variation and viability of hybrid governance structures (Makadok & Coff,
2009). Our findings support the emerging view on hybrid organizational forms as complex, multidimensional arrangements exhibiting a high degree of variation in governance features, featuring
important trade-offs (Kivleniece & Quélin, 2012) and a divergent degree of ability to address the
contingencies surrounding the exchange. Second, by distinguishing between two distinct types of
institutional uncertainty – related to political, yet, also social constituency driven influences, we
broaden the notion of (exogenous) environmental uncertainty, traditionally restricted to more
traditional market (demand) and technology-based notions (Folta, 1998; Geyskens et al., 2006; Walker
& Weber, 1984). In particular, but calling into attention not just the influence of state or public actors,
but also of “community constituents in the organization's task environment” (Baum & Oliver, 1991:
187; Turk, 1973; Zucker, 1987), we suggest how a broader set of agencies exercising social control
may be able to influence the organizational structures and governance selection, at least from a
theoretical perspective. At last, by re-visiting the notion of governance misalignment from a broader
political and social contingency context (rather than mere transactional view), we develop a theoretical
distinction between transactional and broader institutional alignment as a potentially important
predictor of underlying governance form sustainability and duration.
Our results on public-private governance choice, specifically, suggest that organizational actors
(private actors, in particular) may opt for structurally different public-private governance forms, i.e.
autonomous versus integrative ones, depending on the degree of political constraints and market-based
volatility in the underlying exchange environment. In line with our theoretical hypotheses,
increasingly constrained political environments (and, hence, less uncertain) are shown to reduce the
reliance on autonomous governance forms, while, by inverse logic, a high feasibility of policy change
(i.e. few political constraints) appears to be enhance it. As mentioned, this insight calls into question a
more common view that private actor participation may be severely limited in politically uncertain
environments (Henisz, 2002; Henisz & Zelner, 2001; Levy & Spiller, 1996; Savedoff & Spiller, 1999).
Moreover, based on developing country setting, the insights of our study suggest the “hybridization”
42
of governance forms – in a sense of selective adjustment and adoption of different underlying
governance features to address political environment contingencies, as a powerful theoretical
mechanism to explain the prevalence, fit and viability of these arrangement in emerging or “bottomof-the-pyramid” market contexts (George et al., 2012).
Interestingly, however, our findings also point out to some crucial differences that may exist in
governance structures depending on the politico-institutional level on which public-private interaction
takes place. With private actors being able to collaborate with public actors on state, federal, as well as
local (municipal or community-based) levels, the degree and impact of political uncertainty, in
particular, as perceived on the state or national level, appears not homogeneous across these levels.
Our results suggest that, while there is a strong association between country-level political uncertainty
and a reduced reliance on integrative governance arrangements, ties formed on local level may be
preferred to be governed in a more integrative way. An interesting further question to address would
be to assess to which extent such an effect is driven by the nature of political uncertainty construct
itself (measured on state or national level), or tied to more fundamental differences in how private
actors perceive and engage with public actors on different administrative levels. In support of the latter
view, one may argue that local political actors are likely to feature distinct, separate set of political
constraints and stronger local, community-based ties, having, as a result, a different objective function
and incentives vis-à-vis private sector partners. This, in turn, may modify the perceived nature of
political uncertainties from private actor perspective, and render public-private ties formed on local
level and their associated hazards much more relationship-specific and endogenously determined than
public-private ties formed on higher politico-institutional levels.
We likewise find that, as hypothesized, market-based uncertainty plays a critical role in publicprivate governance choice, in particular, shaping the type of operational form selected in each publicprivate engagement. Private actor participation in developing country water sector appears
significantly more likely to take the form of integrative governance forms, such as management
contracts, in the domains that feature high degree of market uncertainty, i.e. utility-based projects. As
such, this insight runs counter the classical transaction cost based tenets in interfirm literature which
43
predict higher market uncertainty (and asset specificity) as associated with more vertically integrated
engagements and limited recourse to hybrid governance forms – at least, from a private actor’s
perspective. Our results suggest that in the context of public-private collaboration, the opposite may be
true – a higher degree of market uncertainty may facilitate the emergence of tightly integrated, shared
authority governance structures between public and private counterparts. In such cases, the public
counterpart is able to share and mitigate part of the adverse effects for the private actor, such as
unpredictable demand fluctuations, associated with market-based contingencies.
In terms of public-private governance typology, our study also sheds important light on the need
to distinguish between separate governance dimensions, relevant for understanding why different
hybrid governance forms emerge and are adopted by organizational actors. Two of these dimensions
relate to what we term the “operational model” or the degree and scope of authority that a private
partner may exercise in a specific collaboration context, as well as the ownership (control) rights over
the physical assets (such as infrastructure). Both of these dimensions appear strongly intertwined –
with on one side, integrative arrangements, such as management contracts, featuring considerably
restricted scope for private actor’s authority and asset control rights and, on another side, concession
type of arrangements, granting most of the decision and (at least temporarily) asset ownership rights to
private actors.
Our empirical analysis, however, also highlights another critical ownership dimension related to
the sharing of residual claimant rights among public and private players – with autonomous
engagements featuring a close-to-full private sector ownership in underlying project companies, and
more integrative arrangements involving an increasing public equity stake. What our results illustrate
is that both asset control and residual claimant rights, rather than being overlapping or substitutes, may
be complementary dimensions of governance, able to address the underlying environmental
contingencies to an unequal, varying degree. For example, while we find that both a high degree of
private equity ownership and high degree of operational autonomy may be sought for in public-private
arrangements that feature high degree of political uncertainty, under a high degree of market-based
44
uncertainty or volatility, only the governance structures based on shared operational model appear to
be systematically selected.
From a broader theoretical perspective, we believe, these insights highlight the need to look
beyond the implicit assumption of uniform distribution of property rights in analyzing hybrid
governance arrangements, and embrace a broader set of dimensions in the analysis of ownership rights
underlying novel organizational structures. As Schlager & Ostrom (1992) point out, one such
approach would be to recognize property rights as a broader bundle of discrete decision rights, each of
which may be distributed in a different manner, especially in the context of collective or public
exchange. As illustrated by the variety of public-private arrangements in the empirical context of the
present study, governance structures that rely on shared residual rights (and hence assume an
equivalent partitioning of underlying decision rights) tell only part of the story. Certain rights may be
given away entirely (such as the rights to private actors to manage the underlying public asset) while
others held or retained (such as the rights to derive revenue, exclude the users or alienate the asset –
often retained by the public sector). Developing and deepening these insights would provide a
promising and important direction for future research.
At last, our empirical results, even if only partially conclusive, also help to shed light on the
longevity or duration of public-private ties, particularly, in the developing country context. Based on
our discrete-event based (probit) analysis, we find that, as predicted, the initial structural alignment
between the governance form and the type and degree of institutional and market-based contingencies
characterizing the exchange is an important predictor of the subsequent duration of underlying ties. If
confirmed in further research, this insight calls for enlarging the established, predominantly
transaction-specific analysis on the impact of misalignment on organizational survival or performance
(Leiblein et al., 2002; Nickerson & Silverman, 2003; Williamson, 1991). More specifically, it calls for
conceptualizing the governance misalignment on a broader level – relating it to the (mis)fit between
the underlying governance structures and a multi-faceted set of contingencies characterizing the
exogenous institutional environment of a given exchange, rather than internal transaction-specific
hazards alone. Through development and testing of an enlarged governance (mis)alignment notion, we
45
also point out the inherent fragility of public-private ties, resulting from organizational actor
preferences being pulled in opposing directions (Kivleniece & Quélin, 2012). In other words,
recognizing that simultaneous presence of, for example, high degree of market uncertainty may
warrant one type (i.e. integrative) of public-private engagement, while the simultaneous presence of
weak political constraints, for example, mandates an alternative (i.e. autonomous) structure, may
explain why a certain degree of governance misfit may be unavoidable in public-private as hybrid
governance context.
Limitations and Future Research Work
Notwithstanding the insights described above, the present study also features several limitations
and conceptual questions to be addressed in future research work.
From a theoretical perspective, exogenous environmental uncertainty may account for only part of
the factors shaping governance structures and their selection in public-private interaction. As prior
theoretical studies highlight (Kivleniece & Quélin, 2012; Rangan et al., 2006), internal, organizational
actor-specific factors, such as the presence (or lack) of idiosyncratic organizational resources and
capabilities on both public and private actors’ side, as well as relationship-specific hazards may
introduce important modifications in the actor preferences and public-private engagement choices.
From a public policy perspective, likewise, in many empirical contexts public-private governance
alternatives may be considerably restrained by legislative or regulatory means (requesting, for
example, mandatory local partner participation or limiting the range of operational models available
for private actor engagements in public service provision). Such restrictions do not necessarily
invalidate our insights, however, they do draw attention to an even broader set of factors likely to
shape public-private governance choices in diverse empirical settings.
From the perspective of institutional environment analysis, we also note that other mechanisms
and agents are likely to play a role in public-private as a hybrid governance structure selection and
longevity. More specifically, our work does not explicitly cover the role and presence of potential
regulatory bodies surrounding public-private actor interaction. While previous studies on the
infrastructure engagements in developing country context have provided important insights on the role
46
of regulatory presence and its features, such as price cap regulation, on the likelihood of terminations
or renegotiations (Guasch, 2004; Guasch et al., 2007), we recognize that more insights and future
work may be called for to join the insights on the influence of regulatory environment and the broader
institutional environment contingencies that are investigated in the present study. We likewise
recognize the potential effects related to other institutional norms or practices, and strategic influences,
such as the feasibility and degree of political decision-maker capture, collusion between private and
political interests, and corruption. While not captured in our present analysis, they are likely to be
particularly relevant in the public-private interaction, particularly, in the developing country settings
and, as such, represent important avenues for future inquiries.14
It is also important to emphasize that in our study we deliberately limit our attention to a
predominantly private actor–based perspective on governance preferences, choices, and longevity
outcomes in public-private interaction. This particular focus is motivated by an observation that most
of existing literature and studies on public-private collaboration have treated public-private interaction
phenomenon principally from a public actor’s (or public policy) perspective, with private actors
implicitly assumed as passive in the underlying organizational structures and choices. In our study, we
aim to correct this view by providing one of the first firm-centric empirical analyses of public-private
governance choices and longevity implications, by illustrating how private actor governance
preferences may be systematically reflected in the selection and fit of underlying organizational
structures.
In our study we likewise deliberately focus on the longevity or duration of public-private ties as
an implicit measure reflecting the underlying performance of the relationship. Yet, as a number of
scholars in alliance literature suggest, longevity as a construct, even if still widely used, may not
provide enough information about the effectiveness of collaboration (Kale, Dyer, & Singh, 2002), blur
the important distinction between outcome and process performance (Ariño, 2003) and ignore other
14
Unfortunately, very limited systematic and (across-time) comparable data are available on the levels of
corruption in the developing market context, which represents the empirical setting of our study. For the
purposes of the present study, we collected internationally recognized measures and data, such as Corruption
Perception Index (estimated from 1995 by Transparency International); however, due to changes in the index
estimation methods and a limited number of relevant country observations were not able to use it in our present
data sample.
47
sources of value that may arise even in prematurely terminated interorganizational engagements. In
our case, we believe it reasonable to assume that the longer the public-private engagement is
operational, the higher the potential pool of public or total value it creates, and, hence, the higher its
overall performance (while short-lived alliances may provide one-off shot of private benefits and
collapse thereafter). Yet, refining and testing alternative, more direct measures of public-private tie
performance, such as the extent of public and private goal fulfilment, represents an important avenue
for future research.
At last, certain limitations relate to the empirical setting and data sample of the present study. First
of all, we acknowledge that focusing our analysis on the developing country context may be restrictive
as we are not able to compare the governance choices and stability of public-private arrangements
observed in these settings with those present in more inherently stable market and institutional
environment conditions, i.e. developed countries. We intend to address this limitation in future
research work by adding the original data (in collection) on public-private governance arrangements in
the water sector in the developed country context, for the equivalent period of 1991-2011. Importantly,
this would also allow us to enlarge substantially the sample size and increase the validity and
reliability of results.
We also recognize that our reliance on the World Bank dataset implies that several limitations that
characterize this dataset are also present in our study. Two key issues can be raised – the
underrepresentation of small public-private projects in this dataset (The World Bank PPI Database:
Extended Methodology 2007), as well as the potential underreporting of distressed projects (with
project distress rates as reported by the World Bank of 12-17% being lower than estimates from other
sources). None of these methodological limitations, however, in our opinion, raise sufficiently high
concerns as to invalidate our analysis.
At last we also note certain limitations and future research work with regards to the specification
of certain variables and additional robustness checks in our empirical models. Most notably, further
work is required to devise a measure able to reflect to a sufficiently robust degree our social volatility
construct. While we do use a theoretically relevant proxy, based on the anti-private ownership
48
sentiment measure, it may not entirely capture the potential likelihood or feasibility of social protests
or contestation. Other factors, such as, for example, the degree of restrictions on the protest or free
speech rights in developing countries may influence and alter significantly the link between antiprivate sentiments and the expression of those sentiments through various (e.g. protest, boycott etc.)
means.
We also recognize that further work may be required to test the robustness and enhance estimation
methods applied in our analysis. More specifically, for testing the governance choice a more complex
approach may be envisaged, based on simultaneous equation models, as one could argue that
governance choices, such as operational model and ownership share (as well as other contractual
features), may be determined simultaneously. A further, more complex estimation method may also be
called for testing partnership longevity. Since organizational actors are able to self-select into a
particular form of governance, and, the relative misfit of the governance may be driven by other
variables, such as the level of adaptive capabilities, which are, in turn, strongly tied to performance,
hence, potential endogeneity and selection concerns may need to be addressed further.
Conclusion
By exploring public-private governance choice and longevity in the context of public-private
water sector engagements in the developing world, our analysis represents one of the first systematic
empirical accounts of the environmental determinants likely to shape the structural preferences and
outcomes in public-private ties as novel hybrid organizational forms. By focusing on the multi-faceted
nature of environmental uncertainty, specifically, our analysis uncovers both market-based and
broader institutional environment related contingencies likely to significantly shape public-private
governance selection and longevity. By differentiating between political, social and market–based
facets of environmental uncertainty, we propose and find support for an argument that alternative,
hybrid forms of public-private governance may co-exist with each alternative structure able to
differentially address the type of contingencies surrounding the underlying exchange.
Our findings illustrate that organizational actors in developing country environments are able to
selectively adjust and intentionally adopt public-private governance structures and features to ones
49
deemed as more fit in the light of underlying environmental hazards, particularly, from the private
actor’s perspective. Failure to do so is suggested to be a significant predictor of a premature distress or
termination of underlying relationship. Moreover, our study highlights the critical impact that
institutional, not mere transactional, alignment between adopted governance and the ex ante external
environment conditions plays in the formation and duration of underlying organizational ties.
From a broader theoretical perspective, the insights presented in this paper contribute to the
emerging view on hybrid organizational forms as exhibiting a high degree of variation in governance
features, a divergent degree of ability to mitigate or address the hazards surrounding the exchange, and
facing a range of governance trade-offs likely to affect the longevity or duration of underlying
engagements.
50
FIGURES AND TABLES
FIGURE 1: Expanding the Governance Spectrum: Public-Private Ties as Distinct Hybrid
Governance Forms
Unassisted market
h =0
Unrelieved hazard
s=0
Private hybrid contracting
h >0
Private hierarchy
s>0
Public-private hybrid
contracting (and
regulation)
Public agency
Note: k is an index of contractual hazard and s denotes contractual safeguards
Source: Adapted from Williamson,1999
FIGURE 2: Public-Private Arrangements: From Theoretical to Empirical Forms
Autonomous
Integrative
Predominantly
private
Operational model
End-user
payment based
Financial or revenue model
Predominantly
(or temporarily)
private
Legend:
Ownership model*
Management contracts
Lease or affermage contracts
Concessions
* On the basis of core asset (infrastructure) ownership
Source: Adapted from Kivleniece & Quelin (2012)
51
Joint (shared)
Public actor
payment based
Predominantly
public (or
shared)
TABLE 1: Overview of Empirical Public-Private Arrangement Types in Water Infrastructure
and Services Sector
Empirical
arrangement
Management
contract
Lease or
affermage
contract
Concession
(incl.
greenfield)
Divestiture4
Operator
duties
Provides
management
services to the
utility in return
for a fee
Manages the
operations,
retains a fee
from customers
based on
volume sold, but
does not invest
in infrastructure
Manages the
operations,
including the
investment in
infrastructure
yet rarely is the
permanent
owner of
infrastructure
assets2
Manages
operations,
finances
investment and
owns
infrastructure
assets
Operator’s
profit
function
Sub
type
Operational
model
Revenue
model
Ownership
Core asset
Equity1
Matching
theoretical
governance
form
Integrative
Fixed fee +
bonus – staff
cost and
related
expense
Revenue from
customers (fee
x volume) –
operating and
maintenance
costs
-
Joint
Public
payment
Public
Casebased
-
Joint
End-user
payment
Public
Casebased
Mixed
features
Revenue from
customers –
operating and
maintenance
costs,
investment
costs, and any
concession fee
BOT
Private
Private
Temporarily
private
Private
BROT
Private
RLT
Private
ROT
Private
Partial
Joint
Temporarily
private
Temporarily
private
Temporarily
private
Mixed
Casebased
Casebased
Casebased
Casebased
Casebased
Mixed
Autonomous
BOO
End-user
payment3
End-user
payment3
End-user
payment3
End-user
payment3
End-user
payment3
End-user
payment
Full
Private
End-user
payment
Private
Private
-
Revenue from
customers –
operating and
maintenance
costs,
investment,
any license fee
Autonomous
Autonomous
Autonomous
Autonomous
-
1
Note that in public-private contractual arrangements equity (i.e. project company) ownership is not equivalent to core asset (i.e.
infrastructure) ownership, and varies on case-by-case basis. We, accordingly, devise a separate measure to classify observed
arrangements into “autonomous vs. integrative” forms on the basis of private actor’s equity stake in public-private project company.
2
In certain forms of greenfield investment, such as Build-Own-Operate (BOO) schemes, private operator may retain the eventual
ownership to infrastructure assets.
3
For several concession projects, such as treatment plants, sales may be directly derived from utilities or public actors, e.g.
municipalities. Hence, the coding above, in terms of revenue model, may be strictly applied only to utilities.
4
Note that the divestiture of public equity stake in utilities operator may be partial or full (i.e. 100%).
Subtype abbreviations correspond to:
BOO: Build-own-operate
BOT: Build-own-transfer
BROT: Build-rehabilitate-operate-transfer
RLT: Rehabilitate-lease-or-rent-transfer
ROT: Rehabilitate-operate-transfer
Source: Adapted on the basis of “Private Participation in Infrastructure (PPI) Database: Extended Methodology”, The World Bank,
June 2007.
52
TABLE 2: Summary Statistics
Nr
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Variable
Operational governance form
Private equity share
Governance misfit
Mixed governance, dummy
Dom. industry governance (oper.)
Dom. industry governance (equity)
Political constraints (POLCON)
Social volatility (proxy)
Utility, dummy
Local level, dummy
Potable water services, dummy
Stability, dummy
Duration, years
Contract length
Reawarded project, dummy
Related project, dummy
Nb of systems
Government support
Multilateral financing
Nb of private actors
Foreign actor involvement, dummy
Local actor involvement, dummy
Initial investment
Capacity (level)
Competitive award, dummy
GDP
GDP growth
Population
Population density
Political freedom
Water access
Water infrastructure, piped
Sanitation access
Agricultural land
Extreme conditions
Obs
271
271
158
271
271
271
250
240
271
204
271
271
271
267
271
271
271
271
271
265
264
265
260
261
271
268
268
268
268
266
270
270
270
268
268
Mean
1.579336
0.947085
0.261713
0.118081
1.579428
0.931956
0.41028
63.36625
0.760148
0.470588
0.848709
0.118081
8.99262
21.42322
0.055351
0.073801
1.04059
0.317343
12.05535
1.562264
0.560606
0.596226
107.5613
0.509579
0.512915
3944.297
2.507933
1.26E+08
63.1067
3.06391
89.70741
73.21852
72.52222
38.17654
0.780431
Std. Dev.
0.740481
0.144804
0.291109
0.323301
0.23216
0.035091
0.195159
9.833688
0.427783
0.500362
0.358996
0.323301
4.69041
9.252753
0.229086
0.26193
0.289018
0.706343
59.24513
0.877373
0.497256
0.491582
341.8524
0.767679
0.500758
2483.054
3.359204
2.23E+08
96.50196
1.458758
8.924276
22.58796
18.58642
16.2635
1.233303
Min
0
0.3
0.000094
0
0.667
0.87
0
34.6
0
0
0
0
0
2
0
0
1
0
0
1
0
0
0
0
0
172.0287
-8.56462
257300
2.352026
1
40
3
7
2.124277
0
Max
2
1
0.995715
1
2
1
0.69
86.7
1
1
1
1
20
50
1
1
4
2
781
5
1
1
4000
2
1
10710.07
13.74159
1.21E+09
625.0512
7
100
99
100
82.04402
7.525066
1
1
0.0542
-0.52
-0.3111
0.301
0.0076
0.0235
0.1457
-0.2684
-0.0065
-0.1865
-0.06
0.036
0.5899
-0.1403
-0.1328
-0.0677
0.2038
0.0186
0.0707
-0.2078
0.1293
0.1363
-0.2325
-0.0551
0.3021
0.0084
-0.0956
-0.1543
-0.257
0.2088
0.189
0.1151
-0.0948
-0.2675
53
2
3
4
5
6
7
8
9
10
11
12
1
-0.137
-0.1448
0.0196
0.1892
-0.0531
-0.0591
0.1267
0.0568
-0.0818
0.0604
0.0652
-0.0866
0.1018
-0.0102
0.0366
0.0084
-0.0103
0.1588
-0.2039
0.3171
-0.0512
-0.0569
-0.061
0.1389
-0.0186
-0.134
-0.1257
-0.0468
0.0612
0.0936
0.0099
0.0981
-0.0361
1
0.6754
-0.232
0.0466
0.0054
0.0582
0.419
0.1017
0.2591
0.0596
0.0017
-0.2716
0.1125
0.1695
0.0874
-0.0804
0.1029
-0.1342
0.0618
-0.0038
0.0442
0.1892
-0.0003
-0.2141
0.0682
0.0745
0.0988
0.1478
-0.0868
-0.0861
-0.1363
0.0549
0.0998
1
-0.1693
0.1766
-0.0121
0.1104
0.208
0.049
0.1585
0.0605
0.0011
-0.0132
-0.003
0.1599
-0.0144
-0.1804
0.0579
-0.1257
0.0336
0.0101
-0.0418
0.1302
-0.0791
-0.122
0.114
-0.1132
-0.0682
0.1911
-0.0889
0.0068
-0.0213
-0.1137
-0.0904
1
-0.18
0.1434
-0.1262
-0.1604
-0.028
-0.122
0.0378
0.0191
0.1648
0.0109
-0.0353
-0.0972
0.003
0.1269
0.2362
0.1019
-0.0262
0.1884
0.0464
-0.1611
0.2572
0.1063
0.052
0.0299
-0.1803
0.0937
0.069
0.0526
0.156
-0.1039
1
-0.1196
-0.0034
0.0139
0.0015
0.0543
0.1098
0.342
-0.1066
-0.0411
0.0214
0.089
0.0016
0.1806
-0.0336
-0.0416
0.0604
0.0647
-0.0489
-0.2275
-0.2402
-0.0554
-0.2541
-0.2066
0.3067
-0.129
0.0882
0.0104
-0.1117
-0.0701
1
-0.0961
0.2044
-0.0753
0.0768
0.0553
0.2272
0.157
-0.1373
-0.0526
-0.0087
-0.2408
0.0636
-0.0232
-0.0285
0.0065
0.1167
0.0398
0.0842
0.2771
-0.1289
0.0494
-0.0718
-0.4946
0.288
0.1761
0.2251
0.0433
0.0316
1
-0.0338
-0.0317
0.0478
-0.1521
-0.268
0.0705
0.0739
0.1567
0.147
0.173
-0.1658
-0.0601
-0.2156
0.1029
-0.0737
-0.0066
0.0293
-0.1424
-0.006
0.1177
0.0964
-0.015
0.1765
0.0894
-0.074
-0.4266
-0.1534
1
0.0078
0.508
0.0239
0.0858
0.0539
0.0816
0.0905
0.0705
-0.234
0.071
-0.0664
-0.1833
0.1341
0.0607
0.2192
0.081
-0.0238
-0.0532
-0.1416
-0.1077
-0.1314
0.1266
0.0891
0.1458
0.0134
0.0022
1
-0.1289
-0.0979
0.0729
-0.0765
-0.0386
-0.1257
0.0097
-0.1585
-0.0945
-0.1603
-0.1189
0.1307
-0.1861
-0.2698
-0.2221
-0.1519
0.0574
0.0083
-0.0192
0.042
-0.0384
-0.0167
-0.1709
0.1083
0.0007
1
0.0515
-0.0674
0.0663
0.1119
0.1477
0.0371
-0.091
0.0718
0.0211
-0.0212
-0.0451
0.0708
0.1164
0.0854
-0.2399
-0.0145
-0.0247
0.0992
0.0736
-0.0894
-0.1678
0.0404
-0.0259
0.1133
1
-0.2828
-0.0618
-0.0082
0.012
-0.0714
-0.0587
0.2971
0.089
0.2185
-0.0977
0.2134
0.1655
-0.0615
0.0434
-0.3122
-0.13
-0.0412
-0.0267
-0.0687
-0.0617
0.028
0.1106
-0.007
TABLE 2: Summary Statistics (cont.)
Nr
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Variable
Duration, years
Contract length
Reawarded project, dummy
Related project, dummy
Nb of systems
Government support
Multilateral financing
Nb of private actors
Foreign actor involvement, dummy
Local actor involvement, dummy
Initial investment
Capacity (level)
Competitive award, dummy
GDP
GDP growth
Population
Population density
Political freedom
Water access
Water infrastructure, piped
Sanitation access
Agricultural land
Extreme conditions
13
1
0.1
-0.04
-0.049
-0.037
-0.272
0.077
0.132
0.069
0.05
0.12
0.024
-0.283
-0.033
-0.113
-0.217
-0.216
-0.014
-0.026
0.069
0.128
0.157
-0.183
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
-0.184
0.032
-0.169
-0.076
0.061
0.096
-0.166
0.072
0.175
-0.006
0.026
0.31
-0.028
-0.063
-0.129
-0.332
0.246
0.125
0.184
-0.162
-0.168
1
0.664
-0.049
-0.005
0.037
0.13
-0.024
0.048
0.155
0.185
0.134
-0.19
0.096
-0.092
0.176
0.176
-0.113
-0.162
-0.043
0.06
-0.022
1
-0.065
-0.081
-0.023
-0.074
-0.047
-0.028
-0.015
0.197
0.069
-0.11
0.138
-0.124
0.069
0.14
-0.039
-0.044
0.068
-0.124
-0.067
1
0.13
-0.04
-0.051
-0.129
0.059
-0.056
-0.133
0.073
-0.18
0.048
0.274
0.231
0.013
-0.067
-0.123
-0.235
0.086
0.232
1
-0.085
0.087
-0.153
0.204
-0.047
-0.245
0.242
0.092
0.019
0.129
0.04
0.02
0.052
0.126
-0.119
0.037
0.049
1
0.112
0.132
-0.107
0.811
0.283
0.063
0.02
0.09
-0.061
-0.025
-0.007
-0.008
-0.055
0.039
0.019
-0.066
1
0.139
0.326
0.238
0.068
0.092
0.017
-0.01
0.015
0.143
-0.149
-0.092
-0.155
-0.069
0.167
0.046
1
-0.701
0.155
0.262
0.071
-0.17
-0.092
-0.056
0.132
0.053
-0.289
-0.246
-0.003
0.197
0.078
1
-0.116
-0.261
-0.056
0.079
0.042
0.12
0.024
-0.107
0.091
0.062
-0.188
0.01
0.016
1
0.363
0.08
0.114
-0.014
-0.075
0.009
-0.111
0.095
-0.043
0.122
-0.014
-0.1
1
0.165
-0.008
0.048
-0.157
-0.036
0.08
0.034
-0.026
0.211
-0.076
-0.174
1
0.14
0.094
0.106
0.131
-0.197
0.076
-0.01
0.081
0.039
0.11
1
-0.144
-0.28
-0.523
-0.437
0.539
0.549
0.547
-0.05
-0.452
1
0.302
0.329
0.091
-0.023
-0.209
-0.21
-0.029
0.209
1
0.819
-0.189
-0.162
-0.577
-0.734
0.269
0.711
1
-0.071
-0.322
-0.776
-0.728
0.345
0.736
1
-0.287
-0.049
-0.028
-0.268
-0.148
54
31
32
33
34
35
1
0.699
1
0.648 0.778
1
-0.263 -0.322 -0.308
1
-0.206 -0.551 -0.594 0.373
1
TABLE 3: Results of Ordered Probit Analysis on Governance Choice (Operational Form)
VARIABLES
Model 1
Model 2
Model 3
Controls
W/Expl.var.
W/Interaction
Full
-0.349
(0.34)
-0.915
(1.43)
-0.840*
(0.49)
-6.025*
(3.32)
-3.518**
(1.60)
6.352*
(3.33)
0.021
(0.03)
-1.800**
(0.90)
-6.658*
(3.78)
-3.804**
(1.85)
6.827*
(3.84)
0.038
(0.03)
-1.742*
(1.03)
1.214
(1.40)
2.175**
(1.00)
-1.266**
-1.252
-1.008
(0.52)
(1.18)
(1.01)
Contract length
0.117***
0.100***
0.112***
(0.02)
(0.02)
(0.02)
Reawarded project
2.276***
1.056
1.018
(0.80)
(0.97)
(1.02)
Related projects
-1.780***
-1.709**
-1.716**
(0.61)
(0.69)
(0.73)
Nb of systems
0.184
0.094
0.088
(0.35)
(0.40)
(0.37)
Government support
0.742***
0.379
0.293
(0.26)
(0.33)
(0.34)
Multilateral financing
0.0004
0.001
0.001
(0.01)
(0.01)
(0.01)
Nb of private actors
0.073
0.516
0.339
(0.26)
(0.46)
(0.46)
Foreign actor involvement
-0.358
-1.593*
-1.227
(0.60)
(0.95)
(0.99)
Local actor involvement
-0.034
-0.693
-0.597
(0.50)
(0.78)
(0.81)
Initial investment
0.003**
0.003*
0.003*
(0.00)
(0.00)
(0.00)
Capacity
-0.591***
-0.749**
-0.837**
(0.23)
(0.35)
(0.36)
Competitive award
-0.435
-0.087
-0.088
(0.34)
(0.50)
(0.52)
Country-level controls
yes
yes
yes
Constant/cut1
-3.894*
-4.573
-2.75
(2.19)
(4.95)
(5.02)
Constant/cut2
-2.819
-3.472
-1.596
(2.18)
(4.94)
(5.01)
McFadden's R2
0.494
0.529
0.549
Log likelihood
-71.833
-51.233
-49.003
Observations (n)
179
148
148
Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1
-1.36
(1.27)
0.108***
(0.03)
0.438
(1.11)
-1.536**
(0.75)
-0.063
(0.37)
0.173
(0.36)
0.000
(0.01)
0.084
(0.48)
-1.43
(1.06)
-0.633
(0.87)
0.004*
(0.00)
-0.925**
(0.40)
0.457
(0.61)
yes
2.302
(5.62)
3.529
(5.63)
0.582
-45.461
148
Political constaints (POLCON)
Local level
POLCON X Local level
Social volatility (proxy)
-0.008
(0.03)
-1.943**
(0.93)
Utility, dummy
Private equity share
Dominant industry governance
(operational)
Project-level controls
Potable water services
55
Model 4
TABLE 4: Results of GLM Regression Analysis on Governance Choice (Equity-Based)
VARIABLES
Model 1
Model 2
Model 3
Model 4
Controls
W/Expl.var.
W/Interaction
Full
0.142
(0.47)
-0.72
(1.61)
-0.178
(0.77)
-7.784**
(3.14)
-4.769***
(1.73)
11.382***
(4.20)
0.019
(0.06)
0.711
(0.66)
-6.365*
(3.43)
-3.517**
(1.78)
8.360**
(3.97)
-0.025
(0.07)
0.757
(0.65)
0.618
(0.71)
16.416*
(9.74)
Political constaints (POLCON)
Local level
POLCON X Local level
Social volatility (proxy)
-0.015
(0.05)
0.551
(0.76)
Utility, dummy
Operational governance form
Dominant industry governance
(equity-based)
Project-level controls
Potable water services
-0.566
-0.309
-0.022
(0.74)
(1.19)
(1.51)
Contract length
-0.054
-0.06
-0.069
(0.04)
(0.05)
(0.05)
Reawarded project
1.735*
14.303***
15.167***
(1.04)
(1.50)
(1.73)
Related projects
-0.409
-0.351
0.358
(0.71)
(0.66)
(0.76)
Nb of systems
0.794
0.695
0.735
(0.55)
(0.61)
(0.74)
Government support
0.183
0.073
-0.223
(0.31)
(0.45)
(0.46)
Multilateral financing
0.006
0.003
0.004
(0.00)
(0.01)
(0.01)
Nb of private actors
0.621
0.439
0.341
(0.43)
(0.44)
(0.42)
Foreign actor involvement
0.27
0.435
1.124
(1.34)
(1.47)
(1.54)
Local actor involvement
2.048
2.072
2.206
(1.44)
(1.63)
(1.51)
Initial investment
-0.001
-0.001
-0.001
(0.00)
(0.00)
(0.00)
Capacity
0.174
0.213
0.222
(0.30)
(0.33)
(0.28)
Competitive award
-0.45
-0.443
-0.196
(0.43)
(0.56)
(0.57)
Country-level controls
yes
yes
yes
Constant
-0.869
-1.247
1.724
(2.80)
(6.79)
(6.16)
Log pseudolikelihood
-26.942
-20.68
-19.317
Observations (n)
179
148
148
Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1
56
0.469
(1.25)
-0.103***
(0.04)
16.359***
(1.38)
0.575
(0.56)
0.591
(0.85)
-0.296
(0.37)
0.003
(0.01)
0.338
(0.36)
1.334
(1.81)
2.243
(1.55)
-0.002
(0.00)
0.306
(0.36)
0.193
(0.58)
yes
-14.892
(13.72)
-18.64
148
TABLE 5: Results of Probit Regression Analysis on Longevity (inversed measure, dummy)
VARIABLES
Model 1
Model 2
Model 3
Controls
Gov form
M ixed form
Governance misfit
M isfit
1.456**
(0.72)
Mixed governance
0.573
(0.37)
Operational governance form
Project-level controls
Private equity share
Model 4
-0.114
(0.24)
0.733
(0.85)
0.047***
(0.02)
-0.213***
(0.04)
-1.108
(1.11)
0.558
(0.52)
-0.093
(0.19)
0.005**
(0.00)
-0.196
(0.18)
1.563***
(0.41)
0.914**
(0.45)
-0.024
(0.20)
-0.708**
(0.34)
5.602***
(1.93)
-0.02
(0.02)
-0.548***
(0.15)
-3.719***
(0.95)
4.778***
(1.05)
-0.58
(0.41)
0.037***
(0.01)
1.588***
(0.40)
0.444
(0.80)
-1.236*
(0.73)
-0.972**
(0.47)
-1.163
(0.82)
0.000
0.000
0.000
0.00
0.00
0.00
GDP growth
-0.173***
-0.172***
-0.178***
(0.05)
(0.05)
(0.05)
Water access
-0.047**
-0.048**
-0.047**
(0.02)
(0.02)
(0.02)
Water infrastructure, piped
0.015
0.016
0.017
(0.01)
(0.01)
(0.01)
Agricultural land
0.015*
0.015*
0.016*
(0.01)
(0.01)
(0.01)
Extreme conditions
-0.157
-0.161
-0.141
(0.16)
(0.17)
(0.16)
Constant
1.31
1.333
0.729
(1.73)
(1.72)
(1.70)
McFadden's R2
0.402
0.403
0.414
Log likelihood (full model)
-53.170
-53.092
-52.179
Observations (n)
244
244
244
Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1
0.000
0.00
-0.603***
(0.16)
0.021
(0.05)
0.026
(0.02)
0.054***
(0.02)
-0.003
(0.29)
-9.38
(5.82)
0.800
-11.096
154
Contract length
Duration
Reawarded project
Related projects
Government support
Multilateral financing
Nb of private actors
Foreign actor involvement
Local actor involvement
Capacity
Competitive award
0.498
(0.83)
0.043***
(0.02)
-0.207***
(0.04)
-1.056
(0.99)
0.674
(0.45)
-0.134
(0.19)
0.005**
(0.00)
-0.208
(0.17)
1.534***
(0.41)
0.966**
(0.45)
-0.009
(0.19)
-0.699**
(0.33)
Country-level controls
GDP
57
0.557
(0.83)
0.048**
(0.02)
-0.206***
(0.04)
-0.968
(1.00)
0.627
(0.49)
-0.113
(0.19)
0.005**
(0.00)
-0.206
(0.17)
1.550***
(0.41)
0.964**
(0.45)
-0.021
(0.19)
-0.710**
(0.33)
TABLE 6: Results of Survival Analysis - Accelerated Failure Time Regression, Weibull
distribution (negative coefficients indicate shorter survival time)
VARIABLES
Model 1
Model 2
Controls
Gov form M ixed form
Model 3
Governance misfit
-0.608
(0.52)
Operational governance form
Contract length
Reawarded project
Related projects
Government support
Multilateral financing
Nb of private actors
Foreign actor involvement
Local actor involvement
Capacity
Competitive award
M isfit
-0.033
(0.81)
Mixed governance
Project-level controls
Private equity share
Model 4
0.128
(0.29)
-0.84
-0.893
-1.601
(1.42)
(1.39)
(1.95)
-0.017
-0.022
-0.021
(0.02)
(0.03)
(0.03)
1.222
1.132
1.258
(1.13)
(1.15)
(1.15)
-0.801
-0.714
-0.561
(0.62)
(0.72)
(0.73)
-0.1
-0.12
-0.114
(0.24)
(0.23)
(0.23)
-0.002**
-0.002**
-0.002**
(0.00)
(0.00)
(0.00)
0.155
0.148
0.124
(0.19)
(0.19)
(0.19)
-1.336*** -1.314*** -1.351***
(0.48)
(0.48)
(0.52)
-0.511
-0.47
-0.438
(0.41)
(0.42)
(0.39)
-0.203
-0.189
-0.191
(0.18)
(0.19)
(0.18)
0.095
0.14
0.079
(0.30)
(0.33)
(0.31)
Country-level controls
GDP
-1.338
(3.11)
0.038
(0.03)
1.659
(1.50)
-1.475
(1.00)
-0.396
(0.33)
-0.003**
(0.00)
-0.167
(0.32)
-0.879
(0.75)
0.049
(0.63)
-0.205
(0.25)
0.271
(0.42)
0.000
0.000
0.000
0.000
0.00
0.00
0.00
0.00
GDP growth
0.085*
0.081*
0.080*
0.198**
(0.05)
(0.05)
(0.05)
(0.08)
Water access
-0.005
-0.004
-0.008
0.002
(0.02)
(0.02)
(0.02)
(0.04)
Water infrastructure, piped
0.01
0.01
0.01
0.019
(0.01)
(0.01)
(0.01)
(0.02)
Agricultural land
-0.001
-0.001
-0.001
0.005
(0.01)
(0.01)
(0.01)
(0.01)
Extreme conditions
0.075
0.095
0.103
-0.146
(0.16)
(0.18)
(0.18)
(0.37)
Constant
5.831**
5.667**
6.958**
4.366
(2.34)
(2.50)
(2.83)
(5.65)
Log pseudo-likelihood
-67.047
-66.923
-65.920
-33.745
Observations
244
244
244
154
Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1
58
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