Columbia International Affairs Online: Working Papers

CIAO DATE: 05/2009

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

March 2009

Asia-Pacific Research Center


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.