We can derive some policy implications from our analysis. The most important is that PPPs are not always more efficient than traditional procurements. Only if the contracts and implementation of PPPs are well designed can the efficiency of these partnerships be enhanced. As seen in the PPP model for the Republic of Korea, the results are similar to those from a traditional procurement, rather than for an ideal PPP. This shows that contractors only focus on maximizing short-term profits by minimizing construction costs rather than maximizing overall profits from the whole cycle of a project. The message here is that a government considering promoting PPPs as an alternative to traditional procurement to enhance efficiency should try to make the PPP mechanism as close as possible to the ideal model of a PPP. From the Republic of Korea's perspective, the incentive structure of construction companies who only care about minimizing costs but not maximizing the net benefit of a project needs to be changed. Strengthening competition in PPP markets would be a good way of going about this.
In the Republic of Korea, where construction companies rather than financial institutions have played major roles in PPPs, competition becomes ineffective when some of the largest construction companies build consortiums in submitting a PPP proposal. The government could consider implementing a regulation that limits the number of large construction firms participating in consortiums bidding for PPP projects. And this has been tried in requests for proposals for some projects.
Financial investors need to play leading roles in developing and implementing PPP projects, and their participation should be promoted. One way to do this is to use the new PPP schemes, BTO-a (adjusted) and BTO-rs (risk sharing), that have been introduced by the government to mitigate the reluctance of private investors by increasing the public sector's contribution or sharing the project risk between public and private stakeholders. Another way is to encourage infrastructure funds to invest in more PPP projects, for which the system and regulation should be reformed to make a diversified PPP investment portfolio of funds possible.
Because of limited data availability, we could only conduct a partial empirical analysis to verify the relevance of our theoretical models. We hope follow-up research with a richer dataset will be able to bring out clearer results on the effect of bundling on the efficiency of PPP projects that was expected from the theoretical models.
In sum, the bundling effect is a key component that affects the efficiency of PPP projects. But the procuring authorities need to examine whether it is indeed effective and, if not, as in some PPP cases in the Republic of Korea, the problems that hamper the realization of the bundling effect should be resolved to improve the efficiency of PPP projects.