Association for Public Policy Analysis & Management

Public-private partnerships (PPPs) have been widely used as the alternative governance for delivering transportation infrastructure projects in the U.S. In the State of Oregon, the enabling statutes for the partnership have encouraged the use of design-build (DB) method besides the conventional design-bid-build (DBB) method. This paper empirically evaluates the economic performance of design-build (DB) projects and the design-bid-build (DBB) projects in delivering transportation infrastructure in the State of Oregon. This paper consults with the transaction cost economics approach to reveal how transaction costs have influenced the choice of the delivery methods and thus its economic performance. Using a two-stage empirical strategy, i.e. the non-parametric data envelopment analysis (DEA) and the instrumental variable two-stage regression approach, I examine 59 DB and DBB bridge and a combination of bridge-roadway projects in order to estimate the effect of transaction costs on the efficiency of the two alternative governance structures, the DB versus DBB, taking into account the endogenous project selection problem. I find that DB projects are more efficient than the DBB projects, and that transaction costs help predict the choice of DB method, i.e. the probability of using DB method over DBB method, and thus the differences in efficiency between DB and DBB projects. These findings are consistent with the transaction cost economics theory that suggests transaction costs minimization motive underlies the choice of governance structure, in this case the choice of DB method.