Allocation of control rights and cooperation efficiency in public-private partnerships: theory and evidence from the Chi
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Allocation of control rights and cooperation efficiency in public-private partnerships: theory and evidence from the Chinese pharmaceutical industry Zhe Zhang · Ming Jia · Difang Wan
Received: 11 March 2009 / Accepted: 21 March 2009 / Published online: 10 April 2009 © Springer Science+Business Media, LLC 2009
Abstract This article uses incomplete contract theory to study the allocation of control rights in public-private partnerships (PPPs) between pharmaceutical enterprises and nonprofit organizations; it also investigates how this allocation influences cooperation efficiency. We first develop a mathematic model for the allocation of control rights and its influence on cooperation efficiency, and then derive some basic hypotheses from the model. The results of an empirical test show that the allocation of control rights influences how enterprises invest in PPPs. A proper allocation provides incentives for firms to make fewer self-interested and more public-interested investments. Such an allocation also improves the cooperation efficiency of PPPs. Keywords efficiency
Pharmaceutical enterprises · PPPs · Allocation of control rights · Cooperation
JEL Classification H41 · L33
Introduction As regulations become stricter, pharmaceutical enterprises in China face tremendous competitive pressure. Regardless of whether they are state-owned, private, foreign-owned, or joint ventures, such enterprises must take the interests of many stakeholders into account. Even as they grow, they must work toward the goal of sustainable development and demon-
Z. Zhang · D. Wan School of Management, Xi’an Jiaotong University, Shannxi 710049, China e-mail: [email protected] D. Wan e-mail: [email protected] M. Jia (B) School of Management, Northwestern Polytechnical University, Shannxi 710072, China e-mail: [email protected]
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strate social responsibility. Private, for-profit pharmaceutical enterprises have a number of potential advantages over nonprofit organizations, including management ability and capital. Meanwhile, since nonprofit pharmaceutical organizations (that is, medical institutes, pharmaceutical institutes, and foundations) are usually linked to the Chinese government, they have their own advantages. Under this situation, public-private partnerships (PPPs) seek to combine the best of both. Through them, pharmaceutical enterprises and nonprofit pharmaceutical organizations can acquire complementary resources and achieve a synergy that benefits both parties. The research literature on PPPs is in its nascent stages and lacks systematic and thorough analyses (Reich 2002; Hart 2003; Bettignies and Ross 2004; Francesconi and Muthoo 2006; Martimort and Pouyet 2008). Such research mainly focuses on the motivation for cooperation between stakeholders. Some case studies are provided, but there is little in-depth theoretical research or large-scale empirical studies. This article emphasizes the contractual nature of PPPs and identifies (1) partner characteristics and (2) public outputs as the t
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