Public-private partnership as a tool to minimize market and state failures

Abstract

In modern economy the problems caused by market failures are usually solved with government intervention. However, the government activities do not always increase the efficiency of scarce resources use. As a result, we observe a situation when regulation of market failures is accompanied by a government fiasco. Currently, negative fundamental and market condition trends increase in the budget system of the Russian Federation. Among these trends are the raw material orientation of export, a significant weakening of the Russian currency, the rapid decline in world oil prices, the implementation of sector sanctions. Structural changes in the economy in 2014 increased the inflation rate, decreased a consumer demand and real income of the population. It has increased the load on budgets at all levels. Meanwhile, there is a number of important infrastructural, social and other projects that should be implemented at the expense of budget funds to meet the needs of the population. Under these circumstances, the solution of the problem to eliminate or minimize market and state failures is of primary importance for the Russian economy. The world experience demonstrates that the public-private partnership mechanism permits to ensure the implementation of socially significant projects, to reduce budget load and to increase investment activity of enterprise structures. Considering the current legislation that regulates these relationships the practical implementation, benefits and limitations of public-private partnerships in Russia are being discussed in legislative and business spheres. In the present article the mechanism of public-private partnership is observed as a tool to minimize market and state failures. The efficiency of public-private partnerships in the production of public goods has been proven on theoretical model basis using microeconomic tools. To demonstrate the developed mechanism in practice, we describe a project for the construction of a polyclinic in Perm. This project has revealed both the mechanism of minimizing market and state failures, and the efficiency of such projects for the private and public partners. The proposed mechanism to minimize market and state failures can be taken into account by the executive state authorities of Perm Krai when developing the mechanism of public-private partnership in the region. The analysis results have been expanded with the economic and legal risk systematization. This systematization includes the distribution of risks among the members of public-private partnership as well as the means of minimization. The suggested method to minimize market and state failures may be used by the authorities of Perm Krai to improve public-private partnership in the region.