Property rights implications of public-private joint ventures

When a public institution contracts with a developer for a codevelopment project, there are two main options for arrangements: the equity or the cooperative joint venture. Equity is basically a shareholding arrangement, whereby inputs are valued at market worth in exchange for respective shares of ownership of the joint development. Under cooperative joint ventures, however, shares of ownership are not necessarily based on the values of the inputs. The partners simply draw up a contract that defines the inputs and apportions the outputs of the joint development. This paper argues that a cooperative joint venture between a public institution and a private developer is basically an arrangement to reduce dissipation of rent under public ownership. Unlike the equity arrangement, cooperative joint ventures necessarily lead to an apparent transfer of shares from the public institution to the private developer. Evidence found thus far in Hong Kong and China is consistent with this hypothesis. Variations of the cooperative joint venture are discussed together with examples.