John Donahue proposes in The Privatization Decision that the difference between input-based and output-based contracting determines the choice between public and private. An output-based contract is defined through:
• Specifications
• Process
• Competition
Specifications require that the project be clearly and well-defined so that predetermined measurements can be applied to define and then determine success in meeting goals.Conversely, processes that are not prescribed in advance but left open play better in private industry where process is often a competitive advantage. Finally, competition guarantees that monopolies (or near-monopolies) are avoided, thus providing a fair price.
Public-private partnerships fit an output-based model. If the criteria for specifications, process, and competition can be met, a PPP may be the best solution for providing infrastructure.