Unsolicited versus solicited public partnership proposals: is there a trade-off between innovation and competition?

Abstract

Unsolicited proposals (UPs) are a modality of public private partnership (PPP) that is increasingly being used to attract private investors and operators to provide innovative solutions to public projects, notably in infrastructure. In most countries that expressly regulate UPs, the PPP tenders establish asymmetric conditions that favour UP proponents over other potential participants, with the aim of incentivising the presentation of innovative project solutions. The present study formally evaluates the conditions under which a competition/innovation trade-off may arise. We find that UPs can offer welfare-improving solutions compared with solicited proposals (SPs) only in exceptional circumstances. In addition, we find no robust evidence to either confirm the trade-off between innovation and competition in PPP tenders, or to indicate that UPs lead to welfare-enhancing solutions that could not be achieved under conventional SPs.