THE ECONOMY OF PUBLIC-PRIVATE PARTNERSHIPS

Quite a number of studies and economic analysis have shown the fact that the public sector can produce added value with private delivery of public services. This added value is reflected in public costs reducing and higher level of public services quality. Also
it has been evidenced that the majority of traditional procurement of public services is not efficient enough because of following reasons: lack of inventiveness of local public management, lack of qualifications for the processes of identification and quantification
of business risks and presence of employee’s adverse selection. Therefore the public decision makers in developed and developing countries find the Public-Private Partnership (PPP) as desirable model, where advantages against the traditional procurement can be
achieved. This model of the public services procurement creates an added value either for the local public partner (lower public costs, higher public services quality, possibility of procurement more services in shorter time period, overcoming of debt restrictions, lower
agency costs) and for private partner (realization of the planned rate of return, lower costs of underinvestment, lower agency costs, avoidance of the insolvency risk of the mother company). These benefi ts for both partners can be achieved using the economy of scale, by introducing the competition in the construction and maintenance of the public buildings as well as the application of the project finance technique. It is expected that the understanding of PPP economy will contribute to the development of that specific market in Croatia, as well to the effectiveness, efficiency and more
quality of the public services what can increase the prosperity of the local inhabitants.