Property rights, right to efficiency?

The assignment of property rights to incentivise risk-sharing in a principal-agent relationship is a recurrent theme of contract theory. This paper examines the incentive effects of property rights in a principal-agent relationship involving government as the principal, that is, the ownership concession model of publicprivate- partnership (PPP) procurement contracts for tollroads. Specifically, the paper investigates the effects of property rights on the agent’s preference for contract structure to manage risks and to exert performance effort; and the effects on both parties’ risk preferences when ownership transfer is being perceived as transferring accountability. Analysis of data collected through an online experiment surveying stakeholders who have been engaging in road contracts procured under the PPP model in 32 countries concludes that: (1) property rights offer the agent a protective shield against poor planning by the principal in the meantime gives rise to ex ante opportunism; (2) the agent’s reservation on ex post decision rights distorts allocative efficiency; and (3) revenue-sharing is a powerful incentive for non-revenueenhancing performance effort. Further investigation attests that incentive effects of property rights can be enhanced through equitable allocation of risks; nevertheless, ex post efficiency is debilitated by considerations of political sensitivity concerning toll pricing