Public Private Partnership has been extensively studied in the literature, especially on different types of PPPs such as concession contracts and leases/management contracts. However, less attention is given to the ownership structure of the concessionaires, which may change the incentives and behaviors of both the public and private partners. We are particularly interested in a joint venture (JV) rather than a wholly-owned entity as a concessionaire, and such a JV is partly owned by the government.
This paper seeks to advance our theoretical understanding of local mixed enterprises within the framework of agency theory and to suggest some avenues for empirical research in this area. We suggest that it may be optimal for a benevolent government to take an equity stake in the firm in order to reduce information asymmetry and make economic regulation more effective. However, there will be trade-off in weaker innovation effort by the firm. The optimal structure will therefore depend on the cost of public funds and the potential for gains in efficiency through innovation.