System Innovations in Infrastructure Finance, Investment, and Asset Management
/We believe it is necessary to investigate ways to improve funding, financing, and investment to rehabilitate our aging infrastructure, improve daily operations, and build new sustainable construction. Public-private partnerships (PPPs) are one way to attract private equity and reinforce conventional public funding mechanisms. In a PPP, the government and private business work together on the construction, operation, and management of infrastructure, sharing revenue, risk, and technology.
To help policy makers identify projects suitable for a PPP, we take a comprehensive systems approach that considers social sustainability (equal and affordable access to public services), environmental sustainability (impact on land use, air quality, and congestion), and financial sustainability (both short-run and long-run obligations). For example, investment in roads may ease the growing demand for travel but may have negative impacts on environmental quality. On the other hand, investment in public transit systems may have a positive impact on sustainability, but may not be profitable. We have developed a framework for analyzing and estimating how the implementation of a PPP will impact, both positively and negatively, the social welfare of all the major project stakeholders (residents, users, government, and the private sector). For one urban highway project, we mathematically modeled a PPP to examine whether the government can achieve socially optimal outcomes and a balanced budget.
To ensure infrastructure projects are well maintained over their lifespan without requiring frequent and expensive repairs, we recommend a life-cycle approach to infrastructure management based on a whole-system concept called “bundling.” In some cases, bundling means the project’s design, construction, operation, and management are “bundled” together so that a private partner is contracted to perform all of these stages—while in other cases, a consortium is formed in which all stakeholders in a project have a role in maintaining the project moving forward. Each partner is thus incentivized to account not only for upfront costs, but also for future costs related to upkeep, replacement, management, and maintenance, making best-value decisions that minimize costs over the full life of the project. A life-cycle optimization model for large infrastructure systems also helps determine optimal multistage maintenance actions and schedules.