Introduction
The provision of infrastructure and public services is among the greatest challenges faced by contemporary governments. In an environment characterized by growing social complexity, accelerated technological change, persistent fiscal constraints and increasingly diversified demands on the part of society, the capacity of the state to plan, execute and sustain long-term public policies has become the subject of growing debate. In this context, Public-Private Partnerships (PPPs) have become established as one of the main instruments used to make investments feasible and to expand the delivery capacity of the public sector.
Despite their wide diffusion, the debate on PPPs remains strongly concentrated on aspects related to contract design, risk allocation, financial structuring and incentive mechanisms. Although these elements are relevant to understanding such arrangements, they narrow the understanding of the phenomenon. By privileging the analysis of contractual efficiency, much of the available interpretation tends to presuppose that the main challenges of public provision can be addressed through the construction of sufficiently sophisticated contracts and adequate governance structures. This perspective, however, becomes less convincing when confronted with the reality of projects executed over extended time horizons, subject to institutional transformations, technological change, economic shocks, and shifts in politics and in social preferences.
The provision of public goods does not take place in environments of perfect information or in fully predictable contexts. On the contrary, it unfolds under conditions marked by uncertainty, dispersed knowledge, bounded rationality and interdependence among decisions made over time. In these circumstances, the central challenges are no longer restricted to the efficient allocation of resources and come to involve, above all, the coordination of decentralized decisions among agents who have incomplete information, different capabilities and potentially divergent incentives. The fundamental question, then, seems to be not the drafting of perfect contracts but the construction of arrangements capable of promoting adaptation, learning and coordination in dynamic environments.
If true, this perspective requires a theoretical framework capable of treating the provision of public goods as a coordination problem in environments characterized by incomplete information, dispersed knowledge and permanent uncertainty. It is in this context that the Austrian School of Economics becomes relevant to the present analysis.
Unlike approaches that focus their attention on the efficient allocation of resources or on the construction of optimal control mechanisms, the Austrian tradition shifts the analytical focus to the problem of coordinating decentralized decisions under uncertainty. The central question is no longer how to distribute resources efficiently in a known environment, but how individuals and organizations manage to coordinate their actions when relevant knowledge is dispersed, preferences are changeable and the future cannot be fully anticipated.
From this perspective, would it be possible to reinterpret Public-Private Partnerships beyond their contractual dimension? That is, instead of being understood exclusively as instruments aimed at transferring risks, attracting investment or pursuing operational efficiency, they would come to be seen as institutional arrangements designed to organize processes of economic coordination in highly complex contexts. Their relevance would then lie in their capacity to redistribute decision-making responsibilities, mobilize dispersed knowledge, structure incentives and promote adaptation mechanisms throughout the life cycle of projects.
Despite the explanatory potential of the Austrian approach, its application to the field of public policy and, particularly, to PPPs has not been widespread. As a consequence, PPPs continue to be analyzed predominantly as contractual instruments, while their organizational, adaptive and coordinating dimension remains relatively underexplored.
It is precisely at this point that the gap motivating this study lies. It is argued that the understanding of PPPs can be significantly broadened when these arrangements are analyzed not only as contracts, but as institutional structures capable of coordinating decisions, knowledge and capabilities in environments marked by uncertainty. This change of lens makes it possible to understand in greater depth both the potential and the limits of these instruments in the implementation of complex public policies.
In view of this problem, the article seeks to answer the following research question: to what extent can Public-Private Partnerships be understood as institutional arrangements for coordination under uncertainty?
To answer this question, a qualitative approach of a theoretical-conceptual nature was adopted, based on an integrative literature review, institutional analysis and praxeological interpretation. The analytical path was developed in three complementary stages. The first consisted of systematizing the foundations related to economic coordination, the entrepreneurial function, dispersed knowledge and the limits of centralized action. The second focused on incorporating contributions aimed at understanding organizational capabilities, entrepreneurial judgment and institutional governance mechanisms. Finally, these elements were articulated into an interpretive model applied to Public-Private Partnerships, with the aim of examining its theoretical coherence, its institutional implications and its explanatory limits.
Based on this path, the article proposes an integrated analytical framework in which PPPs are understood as hybrid arrangements of economic coordination that operate through the decentralization of judgment, the mobilization of organizational capabilities, contractual adaptation and institutional governance. The central argument holds that the performance of these arrangements depends less on the formal completeness of contracts and more on the capacity to articulate knowledge, incentives and decision-making processes in environments characterized by high complexity.
The main contribution of the study consists in shifting the debate on PPPs from a predominantly contractual perspective to an approach centered on economic coordination under uncertainty. In doing so, the article offers an interpretation capable of explaining not only the formal structure of these arrangements, but also the mechanisms through which they function, evolve and adapt over time. In theoretical terms, the study brings together analytical fields that have traditionally remained dissociated. In practical terms, it suggests that the effectiveness of PPPs depends less on isolated contractual solutions and more on the interaction among organizational capabilities, incentives, discovery processes and institutional quality.
Finally, by proposing this reinterpretation, the article broadens the conceptual repertoire available for the analysis of complex public policies and opens a research agenda aimed at the empirical investigation of the coordination mechanisms that sustain the performance of hybrid institutional arrangements in different contexts.
1. Procurement of Public Works: From the Origin of the Modern State to Contemporary Trends
The provision of public works has historical roots that predate the very consolidation of the modern state, reflecting varied institutional arrangements over time. As early as the Roman period, the construction and maintenance of infrastructure such as roads, aqueducts and ports were frequently delegated to private individuals through contracts with the public authority, albeit under strong state centralization and rigid administrative control (Du Plessis, 2006; PPP Alliance, 2025). This model combined sovereign authority over planning and oversight with private execution, establishing an early pattern of interaction between state and market.
During the Middle Ages and the early modern period, the execution of public works remained tied to the authority of the sovereign, being structured through privileges, royal charters and monopolistic concessions (Economic Commission for Europe, 2000). In these arrangements, unilateral prerogatives of the public authority predominated, with limited autonomy for private agents and strong institutional asymmetry. The consolidation of the modern state, particularly from the eighteenth and nineteenth centuries onward, introduced relevant transformations into this model.
With the advent of the liberal state, the distinction between public law and private law became consolidated, especially in the French tradition, in which the Council of State developed the theory of administrative contracts, recognizing the existence of exorbitant clauses that conferred special prerogatives on the public authority, such as unilateral modification and termination in the public interest (Di Pietro, 2023). In parallel, public service concessions expanded in Europe, especially in the railway, port and energy sectors, allowing the mobilization of private capital for large-scale undertakings in a context of industrial expansion and fiscal constraints (Hodge & Greve, 2007).
The late nineteenth and early twentieth centuries marked a significant turning point, characterized by growing state intervention. The intensification of urbanization, the increase in social complexity and the emergence of essential public services expanded the role of the state in the economy. This movement was consolidated over the twentieth century with the advance of the Keynesian paradigm, especially after the 1929 crisis, when public investment in infrastructure came to be conceived as a central instrument of economic policy (Silva, 1996), owing to the belief that it reduces uncertainty, coordinates private expectations and stimulates private investment (Fraga & Resende, 2022). In this context, the state assumed a direct leading role in the execution of works, in basic industrialization and in the creation of strategic state-owned enterprises, including in Brazil, notably during the Getúlio Vargas period (Gimenez & Sabbatini, 2020).
This process resulted in the consolidation of the classic model of public procurement, in which the state plans, finances and contracts out the execution of works through public tenders, retaining ownership of the assets and fully bearing the financial risks. In the Brazilian case, this model was systematized by Law No. 8,666/1993 (Brasil, 1993), which established a legal regime strongly oriented toward formal legality, procedural standardization and preventive control, with the aim of ensuring equal treatment, morality and transparency (Santos & Vieira, 2023).
Despite its institutional advances, this model revealed structural limitations over time, such as contractual rigidity, fragmentation between design and execution, low efficiency in risk allocation and high dependence on fiscal resources. These weaknesses became particularly evident in the context of the fiscal crises of the 1970s and 1980s, marked by growing indebtedness, persistent inflation and a reduction in the state's investment capacity.
From the 1980s onward, a new paradigm emerged, driven by administrative reforms and by the search for greater efficiency in the provision of public services. This movement was accompanied by processes of privatization, divestiture and the strengthening of mechanisms of delegation to the private sector (Cavalcante & Silva, 2020). In the contractual field, models that sought to integrate financing, construction, operation and maintenance into long-term contracts, with risk-sharing mechanisms and performance-linked remuneration, gained relevance.
This transformation was deepened by the diffusion of the New Public Management paradigm, which proposed replacing the traditional bureaucratic model with arrangements oriented toward results, contractualization and greater interaction between state and market (Peci et al., 2008). The United Kingdom played a central role in this process, especially with the implementation of the Private Finance Initiative (PFI) model, which consolidated integrated contracts based on the life cycle of assets and financed by private capital (Grimsey & Lewis, 2004; United Kingdom, 2017).
In Brazil, the institutional reconfiguration took place in parallel with the process of redemocratization and economic stabilization. The Federal Constitution of 1988 (Brasil, 1988) reaffirmed state ownership of public services, while at the same time providing for their delegation to private enterprise. The reforms of the 1990s, consolidated by the Plano Diretor da Reforma do Aparelho do Estado (Brasil, 1995c), redefined the role of the state, promoting the transition from a model of direct execution to a regulatory model (Bresser Pereira, 1998).
In this context, Law No. 8,987/1995 (Brasil, 1995a) structured the concession regime, establishing principles such as economic-financial equilibrium and reasonable tariffs, while Law No. 9,074/1995 (Brasil, 1995b) broadened the possibilities for delegation. However, the ordinary concession model proved limited in sectors with low ability to pay or high risk, creating demand for more flexible contractual arrangements.
The institutional response to this challenge materialized with Law No. 11,079/2004 (Brasil, 2004), which instituted Public-Private Partnerships in the sponsored and administrative modalities. These structures introduced long-term contracts with objective risk sharing, public consideration payments and guarantee mechanisms, representing a qualitative change in the logic of public procurement. The focus shifted from the execution of works to the delivery of results over the life cycle of assets, with performance-linked remuneration.
This new model incorporated sophisticated instruments of financial engineering and governance, such as project finance, Value for Money (VfM) analysis and integrated risk modeling (Araújo, 2006; Diniz et al., 2021; Lima & Coelho, 2015; Pereira & Silveira Neto, 2013). Such instruments reflect growing institutional complexity, in which efficiency depends not only on contract design, but on the capacity to align incentives, allocate risks and ensure regulatory predictability over time.
The evolution of this entire model was furthered by the enactment of Law No. 14,133/2021 (Brasil, 2021), which progressively repealed Law No. 8,666/1993 and established a new legal framework for public tenders and administrative contracts in Brazil. Although it preserved classic principles of public administration, such as legality, impersonality, morality, publicity and efficiency, this new legislation introduced relevant innovations aimed at modernizing contract management. Among them, the following stand out: expanded procurement planning, mandatory risk management, greater value placed on preliminary technical studies, the institution of competitive dialogue, intensive use of electronic means and the strengthening of governance mechanisms and results-based control. The New Public Procurement Law also promoted a gradual change of focus, shifting attention from predominantly formal control of procedures toward the achievement of performance, cost-effectiveness and the generation of public value.
All these transformations brought the general procurement regime closer to contemporary public management practices and came to reinforce the understanding that the effectiveness of public investments depends not only on compliance with legal procedures, but also on the institutional capacity to plan, coordinate, monitor and adapt contracts throughout their execution. Therefore, from this perspective, the consolidation of the PPP should be understood as part of a broader process of transformation of the role of the state, in which direct execution gives way to regulation, to the contractualization of results and to the coordination of hybrid arrangements (Pinheiro, 2016). It is an institutional response to contemporary structural challenges, such as fiscal constraints, technological complexity and the need for intertemporal efficiency.
In broader terms, the evolution of public works procurement reveals a pendular movement between state centralization and delegation to the private sector, conditioned by economic, institutional and ideological changes. Contemporary trends point toward increasingly complex models, guided by performance, fiscal sustainability and contractual governance, in which institutional quality and coordination capacity become decisive for the success of infrastructure investments.
2. Assumptions of the Austrian School of Economics
The evolution of public procurement models, marked by the transition from centralized forms of provision to more complex and hybrid arrangements, imposes the need for a theoretical framework capable of explaining coordination processes in environments characterized by uncertainty, dispersion of knowledge and temporal interdependence. In this context, the Austrian School of Economics offers a particularly relevant analytical basis by shifting the focus from the efficient allocation of resources to the dynamics of economic coordination.
Founded by Carl Menger, the Austrian tradition is built on the subjectivism of value, the processual nature of markets and the emergent character of social institutions (Menger, 2021; Soto, 2010). Unlike approaches that assume equilibrium and complete information, this perspective emphasizes individual action in contexts of genuine uncertainty, in which decisions are made on the basis of subjective expectations and imperfect knowledge. This theoretical orientation underpins a consistent critique of attempts at economic organization based on central planning, by highlighting cognitive and informational limits that restrict the coordinating capacity of centralized structures (Hayek, 2010; Mises, 2010a).
At the center of this critique lies the concept of economic calculation, developed by Ludwig von Mises. For the author, economic rationality depends on the existence of prices formed in competitive markets, which make it possible to compare alternative uses of scarce resources. In the absence of such prices, as occurs in structures where voluntary exchange is limited or nonexistent, it becomes impossible to assess costs, benefits and opportunities consistently (Mises, 2010a). This argument has direct implications for the state provision of infrastructure and public services, insofar as such activities frequently operate outside a full price system, hindering efficient investment and operating decisions.
However, the partial mitigation of the economic calculation problem in the Public-Private Partnership stems from the incorporation of economic validation mechanisms that are absent from traditional bureaucratic provision. Although the final public good still is not fully priced in the market, relevant decisions come to be guided by capital costs, demand projections, financing structure, rates of return required by investors and risk assessment carried out by private agents. These elements function as indirect economic signals that discipline the allocation of resources and restrict purely administrative decisions.
This limitation makes the analysis of PPPs particularly relevant, since such arrangements seek to incorporate mechanisms capable of bringing certain decisions closer to the logic of market economic calculation.
Friedrich Hayek, in turn, deepens this analysis by showing that the fundamental economic problem is not only calculation, but the utilization of knowledge dispersed in society. The knowledge relevant to decision-making is fragmented, localized and, to a large extent, tacit, being distributed among individuals and organizations. As the author points out, this knowledge “never exists in concentrated or integrated form” (Hayek, 2011, p. 519), which makes its centralization by any authority unfeasible. In this context, the price system acts as a communication mechanism that coordinates decentralized actions, allowing individuals to adjust their behavior without the need for an omniscient decision-making center. Thus, the PPP can be understood as an institutional discovery mechanism. By allowing private agents to propose technical, operational and financial solutions not previously known to the public planner, these arrangements expand the system's capacity to exploit knowledge dispersed in society.
Excessively centralized structures therefore tend to waste this knowledge, generating rigidity and inefficiency. The PPP can be interpreted as an institutional response to this problem by allowing dispersed knowledge to be incorporated into the provision of infrastructure.
Economic coordination, from this perspective, is a dynamic process driven by the entrepreneurial function. For Israel Kirzner, the entrepreneur is the agent responsible for identifying opportunities arising from maladjustments in the economic system, promoting their correction through profit-oriented actions (Kirzner, 2012). This function is intrinsically associated with the existence of incentives, exposure to risk and the possibility of appropriating the gains resulting from the discovery of opportunities. In environments in which such conditions are attenuated, as in bureaucratic structures, the intensity of entrepreneurial activity tends to be reduced, compromising processes of adaptation and innovation. Although regulatory stability is a necessary condition for the functioning of PPPs, the excessive expansion of controls, procedural requirements and operational restrictions may produce the opposite of the intended effect. From the Austrian perspective, excessively interventionist structures reduce the decision-making autonomy of the private partner, limit discovery processes and turn the PPP into a mere extension of the state bureaucracy creating institutional spaces for the exercise of the entrepreneurial function within the provision of public goods.
The Austrian critique of state intervention also manifests itself in the analysis of government failures. Mises argues that, in the absence of a system of profit and loss, public administration replaces economic criteria with formal rules and administrative procedures, characterizing what he calls bureaucratic management (Mises, 2010b). This model, although functional for ensuring predictability and control, presents structural limitations in terms of efficiency and adaptability. As an example, Mises (2023), in examining the results of intervention in the price structure, makes it clear that public policies frequently generate unintended effects, reinforcing the need for analysis based on incentives and consequences, and not merely on declared intentions (Mises, 2023, p. 859).
Although developed in the context of market analysis, this theoretical structure provides important elements for understanding contemporary institutional arrangements, especially those that combine characteristics of market and hierarchy. In this sense, recent contributions have sought to integrate Austrian foundations with approaches from the theory of the firm, organizational capabilities and institutional analysis (Foss & Klein, 2012; Klein et al., 2010; Quelin et al., 2019).
The theory of the firm based on entrepreneurial judgment represents a relevant advance in this process of integration. By shifting the focus from transaction costs to decision-making under uncertainty, this approach conceives of the firm as a structure that organizes the exercise of economic judgment in contexts in which it is not possible to anticipate outcomes by means of objective probabilities (Foss & Klein, 2012). Entrepreneurial judgment, by its nature, is not fully contractible, which justifies the existence of organizations that concentrate decision rights and control over resources. Thus, the firm emerges as an institutional arrangement that makes possible the implementation of decisions based on tacit knowledge and subjective expectations.
The literature on organizational capabilities complements this perspective by emphasizing that the exercise of entrepreneurship depends on structures that make it possible to identify opportunities, mobilize resources and execute strategies (Bitencourt et al., 2024; Teece, 2007; Teece & Pisano, 1994). Organizations are, in this sense, repositories of capabilities, understood as sets of routines, knowledge and competencies, which are cumulative and path-dependent in character (Foss & Klein, 2012). Organizational performance, therefore, cannot be explained solely by incentives or formal structures, but by the effective capacity for adaptation and learning over time.
Extending this framework to the public sector gives rise to the theory of public entrepreneurship, which recognizes that processes of innovation and value creation also occur in government organizations (Klein et al., 2010). However, these processes are conditioned by specific characteristics, such as multiple objectives, the absence of clear performance metrics and greater complexity in coordination among actors. This implies that public entrepreneurship occurs under more severe constraints, requiring institutional mechanisms that make decision-making and adaptation possible in highly complex environments.
Finally, the concept of private scope offers an additional dimension for the analysis of coordination in hybrid arrangements. This concept refers to the extent of the participation of private agents in different activities along a value chain, reflecting the distribution of decision rights, responsibilities and risks (Quelin et al., 2019).
Private scope is not arbitrary, but conditioned by organizational capabilities and by the institutional environment, being expanded in contexts that combine adequate competencies and regulatory predictability. From this perspective, private scope can be interpreted as a measure of the intensity of the decentralization of entrepreneurial judgment. The greater the integration among financing, design, construction, operation and maintenance, the greater the private partner's capacity tends to be to recombine resources, adapt processes and develop innovative solutions in the face of unforeseen contingencies. By contrast, excessively fragmented structures reduce decision-making autonomy and limit the exploitation of gains arising from organizational learning. In other words, a PPP with an excessively restricted private scope tends to limit the exercise of entrepreneurial judgment, reducing the adaptive capacity of the arrangement. Moreover, practices of regulatory capture, corruption or political interference may distort the economic signals that guide decision-making, compromising the coordinating potential of these structures.
This interpretation suggests that differences in performance among PPPs do not stem exclusively from the quality of contracts or from the regulatory environment, but also from the degree to which the arrangement allows the effective exercise of the entrepreneurial function. Private scope thus emerges as a central variable for understanding the adaptive and innovative capacity of these models.
Taken together, all these elements make it possible to understand economic coordination not as a static outcome, but as a dynamic process that emerges from the interaction among entrepreneurial judgment, incentives, capabilities and institutions. This perspective provides the analytical basis needed to interpret contemporary arrangements, such as Public-Private Partnerships, not only as contracts, but as institutional mechanisms aimed at coordinating decisions under uncertainty.
3. Discussion
The issues raised in this study make it possible to reinterpret Public-Private Partnerships beyond their traditional conception as contractual instruments aimed at allocative efficiency and risk transfer. The main theoretical finding lies in understanding the PPP as an institutional arrangement for coordination under uncertainty, whose operating logic cannot be fully explained by static approaches centered on contract design.
This interpretation shifts the analytical axis that has privileged models based on transaction cost economics and agency theory, by emphasizing the role of dynamic coordination in contexts of dispersed knowledge and radical uncertainty. By incorporating the assumptions of the Austrian School, the present study shows that the central problem faced by the public sector is not only one of contractual efficiency, but of structural limitations on decision-making and coordination capacity, arising from the impossibility of concentrating relevant knowledge and performing complete economic calculation.
In this sense, the theoretical results suggest that the PPP operates as an institutional mechanism that mitigates, but does not eliminate, such limitations. The partial decentralization of decision-making, especially through the transfer of responsibilities to the private partner over the life cycle of projects, constitutes a central element of this process. This decentralization makes it possible to bring certain decisions closer to contexts that are richer in information and more sensitive to incentives, even though embedded in incomplete contractual structures. In other words, such mitigation stems, above all, from the introduction of indirect economic calculation mechanisms within the process of public provision.
Although the PPP does not fully reproduce the conditions of a competitive market, it subjects a relevant share of decisions to the discipline of private assessments of feasibility, demand projections, capital costs, return expectations and financial constraints. Structures such as project finance reinforce this process by tying the sustainability of the undertaking to its effective capacity to generate cash flows over time. In this context, prices, discount rates, financing costs and performance indicators come to function as economic signals that guide the decision-making of the agents involved. Thus, the PPP does not eliminate the economic calculation problem identified by the Austrian tradition, but it creates institutional mechanisms that bring certain decisions closer to the discovery and validation processes observed in markets.
The connection with the contemporary theory of the firm broadens this interpretation by showing that the performance of the PPP depends not only on the allocation of risks, but on the redistribution of entrepreneurial judgment. Unlike traditional models of public procurement, in which the state concentrates critical decisions, the PPP creates institutional space for the exercise of the entrepreneurial function by the private sector, especially in dimensions related to innovation, adaptation and the management of uncertainty.
This contribution represents an advance over the existing literature, by integrating the Austrian tradition, frequently underused in public policy studies, with contemporary approaches that emphasize organizational capabilities and governance. The proposed analytical model, structured around the interaction among entrepreneurial judgment, incentives, capabilities and institutions, offers a more comprehensive lens for understanding the variability in the performance of Public-Private Partnerships in different contexts.
In addition, the findings reinforce the relevance of organizational capabilities as a mediating element between incentives and outcomes. The analysis developed here indicates that the effectiveness of the PPP depends on the capacity of the agents, public and private, to interpret, execute and adapt decisions over time, contrary to those who believe that well-designed contractual structures are sufficient to ensure efficiency. This dimension is particularly relevant in long-term contracts, in which contractual incompleteness is inevitable.
Despite their advantages over traditional models of public provision, PPPs remain embedded in an institutional environment marked by the presence of the state and, therefore, subject to the limitations inherent in government action. From a more rigorous Austrian perspective, such arrangements do not eliminate the problems associated with the absence of full private ownership of assets, the lack of direct consumer sovereignty and the influence of political objectives on economic decisions.
Unlike competitive markets, where profits and losses function as permanent selection mechanisms, PPPs operate in regulated contexts in which part of the risks remains shared with the public sector. This means that the discipline exercised by the market process occurs in a partial and imperfect way.
Consequently, PPPs should be understood not as complete substitutes for market coordination, but as intermediate institutional solutions capable of incorporating certain entrepreneurial mechanisms into public provision. Their merit lies not in eliminating the coordination problems identified by the Austrian School, but in creating conditions to partially mitigate them through decision-making decentralization, the alignment of incentives and the expansion of the room for adaptation and discovery.
The implications of this understanding are significant. From a theoretical point of view, the study contributes to shifting the debate on PPPs from a predominantly static approach to a dynamic perspective, centered on coordination under uncertainty. This makes it possible to bring together traditionally separate fields, such as Austrian economics, the theory of the firm and public policy studies, broadening the analytical scope available for the study of hybrid institutional arrangements.
From a practical point of view, the results suggest that the success of the PPP depends less on the degree of formal sophistication of contracts and more on the quality of the interaction among incentives, capabilities and institutions. This implies that reforms aimed exclusively at regulatory improvement may be insufficient if they are not accompanied by the strengthening of state capacities for structuring, regulation and monitoring, as well as by the creation of stable and predictable institutional environments.
The PPP model in light of the Austrian School
The analysis developed throughout this study makes it possible to advance from an explanatory interpretation to an analytical proposition: if Public-Private Partnerships can be understood as institutional arrangements for coordination under uncertainty, then it is possible to outline the principles that characterize configurations more consistent with the assumptions of the Austrian School of Economics.
Such a proposition should not be interpreted as a closed normative model, but as a guiding analytical framework, capable of illuminating how different institutional arrangements may favor or restrict the coordination of decisions in environments marked by radical uncertainty, dispersion of knowledge and contractual incompleteness.
In this sense, a PPP model aligned with this perspective can be understood on the basis of four interdependent principles: 1) decentralization of entrepreneurial judgment; 2) primacy of adaptation over contractual completeness; 3) centrality of organizational capabilities; and 4) intertemporal governance.
The first refers to the decentralization of entrepreneurial judgment. Economic coordination, from the Austrian standpoint, depends on decisions being made by agents who hold contextual and specific knowledge. Thus, the PPP should be structured so as to transfer to the private partner not only execution, but also relevant portions of decision rights over the life cycle of the project. This implies reducing the degree of ex ante prescription and expanding the room for adaptive solutions, conditioned by the capabilities of the agents and by the existing governance mechanisms.
The second principle concerns the primacy of adaptation over contractual completeness. In long-term contracts, the attempt to anticipate all contingencies proves not only unfeasible, but potentially counterproductive. A model consistent with the Austrian perspective recognizes contractual incompleteness as inherent and, therefore, incorporates mechanisms that make adjustments over time possible, through structured reviews, renegotiations and governance devices that allow changes to be accommodated without compromising the continuity of the arrangement.
The third principle highlights the centrality of organizational capabilities. The decentralization of judgment and the presence of adequate incentives do not produce results automatically. The effectiveness of the PPP depends on the capacity of the agents, public and private, to interpret, execute and adapt decisions in dynamic contexts. This implies recognizing that the performance of these arrangements is conditioned on the existence of technical, managerial and institutional competencies that sustain their operation over time.
The fourth principle refers to the role of institutions and intertemporal governance. In contracts characterized by long duration and high complexity, regulatory predictability, legal certainty and institutional stability become central elements for making investment decisions feasible and sustaining cooperation among the agents. Governance, in this context, is not limited to the contract, but involves the set of formal and informal mechanisms that structure interaction over time.
The articulation of these principles makes it possible to understand Public-Private Partnerships as arrangements in which economic coordination emerges from the interaction among decentralized decision-making, incentives, capabilities and institutions. More than contractual instruments, these partnerships constitute organizational and institutional structures aimed at continuous adaptation in complex environments, in which performance depends on the capacity to deal with uncertainty, and not to eliminate it.
The proposed interpretation does not imply that PPPs are perfect substitutes for genuine market mechanisms. The limitations arising from political interference, from the absence of full consumer sovereignty and from the impossibility of complete price formation for the public goods involved remain. PPPs should, therefore, be understood as second-best institutional solutions, capable of mitigating, but not eliminating, problems of economic coordination. It must therefore be recognized that PPPs do not fully reproduce the conditions of a competitive market, considered by the Austrian tradition to be the environment most favorable to economic coordination. However, given the practical or institutional impossibility of full privatization of certain infrastructures and public services, PPPs can function as intermediate arrangements that incorporate market elements, such as incentives, entrepreneurial judgment and financial discipline, partially reducing the problems of economic calculation and dispersed knowledge present in traditional state provision.
Financial structures and asset-based coordination
The operationalization of the principles described above can be observed in arrangements that adopt asset-based financing structures, notably project finance. In this type of configuration, the expected cash flow of the undertaking constitutes the main guarantee of the investment, which imposes an economic discipline derived from the very feasibility of the project, and not from external administrative controls (Paranaíba, 2015).
This characteristic brings such arrangements closer to the coordination mechanisms emphasized by the Austrian tradition, insofar as decisions are guided by expectations, performance and economic signals, albeit in mediated institutional contexts. Risk allocation, in this scenario, is not limited to a formal contractual division, but translates into the agents' effective exposure to the economic results of the undertaking, reinforcing the role of entrepreneurial judgment.
Applied proposals along these lines go further by incorporating into the financing and governance structure agents directly affected by the project, such as owners of properties located in the area of intervention. In these models, the participation of such agents may take place through mechanisms such as the acquisition of equity stakes in special purpose entities, land value capture instruments and joint development arrangements, in which the benefits arising from the appreciation of assets are partially internalized by the undertaking itself (Paranaíba, 2015).
This configuration reinforces the decentralization of coordination by aligning incentives more directly among the different participants, reducing dependence on hierarchical control mechanisms. At the same time, it broadens the scope of the entrepreneurial function, which comes to include not only the traditional private partner, but also local agents with economic interests directly linked to the performance of the project.
Furthermore, such arrangements show that coordination can emerge from hybrid structures in which ownership, financing and governance are articulated dynamically. The use of instruments such as land value capture, financing based on future revenues and local participation contributes to the formation of a feedback loop in which investment, asset appreciation and revenue generation reinforce one another.
However, this expansion of market logic does not eliminate the need for a robust institutional framework. On the contrary, the greater the complexity and decentralization of the arrangement, the greater the dependence on institutions capable of ensuring predictability, reducing uncertainty and making cooperation over time possible. Thus, these models should not be interpreted as substitutes for state action, but as extensions of its coordinating capacity through indirect mechanisms.
Conclusion
This article sought to answer to what extent Public-Private Partnerships can be understood as institutional arrangements for coordination under uncertainty, in light of the Austrian School of Economics and of contemporary approaches to capabilities and governance. The analysis developed makes it possible to state that this interpretation is not only valid, but offers a more comprehensive explanation of the functioning, potential and limits of these arrangements.
Throughout the work, it was shown that the PPP operates as a mechanism that reorganizes economic coordination by redistributing entrepreneurial judgment, structuring incentives, mobilizing organizational capabilities and relying on specific institutional contexts. In this process, such arrangements do not eliminate the limitations associated with economic calculation, the dispersion of knowledge and government failures, but they create conditions to partially mitigate them through decision-making decentralization and adaptation over time.
The incorporation of applied evidence reinforces and broadens this interpretation by showing that, in certain configurations, Public-Private Partnerships can evolve into structures that are even more intensive in market mechanisms. Arrangements based on asset-based financing, such as project finance, and mechanisms for the direct alignment of incentives, including the participation of local agents and value capture instruments, show that coordination can emerge in a more decentralized way, anchored in the agents' exposure to the economic results of the undertaking. Project finance can be interpreted as a substitute mechanism of economic calculation. Since the feasibility of the undertaking depends on the future generation of cash flows associated with the asset, investors and lenders are encouraged to assess risks, costs and demand expectations rigorously. Unlike traditional public provision, where decisions frequently remain dissociated from their economic results, asset-based financing creates a direct link among judgment, responsibility and performance.
The dependence of financing on the expected performance of the asset obliges the private partner to exercise continuous entrepreneurial judgment, assessing opportunities, risks and alternative allocations of resources. In this sense, project finance acts as a disciplining mechanism that reduces the incentives for wasting capital frequently observed in purely bureaucratic structures. This configuration not only reinforces the role of entrepreneurial judgment, but also broadens the scope of the entrepreneurial function within the provision of public goods.
The main contribution of the study lies, therefore, in the proposition of an integrated analytical model that makes it possible to understand Public-Private Partnerships as dynamic arrangements of coordination, structured on the basis of the interaction among four central dimensions: decentralization of judgment, contractual adaptation, organizational capabilities and institutional governance. The incorporation of asset-based financial structures and of expanded mechanisms for aligning incentives reinforces this model by demonstrating its applicability in real contexts, bringing it closer to observable configurations.
The answer to the research question is affirmative, but qualified. PPPs can be understood as institutional arrangements for coordination under uncertainty because they redistribute judgment, mobilize organizational capabilities and incorporate market mechanisms into the process of public provision. Nevertheless, this capacity remains necessarily limited by the hybrid characteristics of these arrangements. Unlike fully decentralized markets, PPPs remain conditioned by regulatory constraints, political objectives and incomplete contracts. Their relevance, therefore, stems not from the elimination of economic coordination problems, but from the capacity to reduce them in comparison with traditional models of state execution. Their performance remains dependent on the quality of state institutions, the robustness of organizational capabilities and the degree of effective alignment of incentives.
It is clear, from the Austrian perspective, that PPPs could be understood as second-best institutional mechanisms; that is, they do not replace the market process, but incorporate elements capable of partially mitigating the coordination problems inherent in the state provision of infrastructure and public services. Thus, they do not represent the ideal solution, but an institutional solution superior to purely bureaucratic alternatives.
In broader terms, the article contributes by shifting the debate on PPPs from a predominantly contractual logic to a dynamic perspective of economic coordination, showing that the value of this arrangement lies not only in the formal efficiency of contracts, but in the capacity to structure processes of discovery, adaptation and innovation in contexts marked by uncertainty. This interpretation opens space for new research agendas aimed at the empirical analysis of different institutional configurations, especially those that expand decision-making decentralization and the integration among financing, ownership and governance.
Despite these contributions, the study has limitations inherent in its theoretical nature. The absence of empirical validation prevents direct verification of the proposed relationships, especially with regard to the interaction among entrepreneurial judgment, organizational capabilities and PPP performance. In addition, the analysis does not explicitly differentiate specific sectors or institutional contexts, which may be relevant given the heterogeneity of these arrangements.
In view of this, a promising agenda for future research consists of carrying out empirical studies that investigate how these dimensions manifest themselves in different sectors, such as urban infrastructure, health and education, and at different levels of government. In addition, cross-country comparative analyses may contribute to understanding the role of institutions in the configuration and outcomes of PPPs.
Another relevant line of investigation involves measuring the impact of organizational capabilities on the performance of these contracts, as well as analyzing concrete mechanisms for the exercise of entrepreneurial judgment in regulated contexts. Such studies may contribute to refining the proposed analytical model and broadening its applicability.
In sum, the discussion developed in this article reinforces the idea that PPPs should be understood not as definitive solutions to the problems of public goods provision, but as imperfect yet relevant institutional arrangements that reorganize the relationship among decision, knowledge and action. In doing so, they expand coordination capacity in complex environments, even though they remain conditioned by structural limitations inherent in both the state and the market.