Regulation Governance - 2015 - Vining - The Challenges of Fractionalized Property Rights in Public Private Hybrid

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Regulation & Governance (2016) 10, 161 –178 doi:10.1111/rego.12086
The challenges of fractionalized property rights in

public-private hybrid organizations: The good, the bad,
and the ugly
Aidan R. Vining
Beedie School of Business, Simon Fraser University, Vancouver, BC, Canada
David L. Weimer
La Follette School of Public Affairs, University of Wisconsin–Madison, Madison, WI, USA
Abstract
Policy designers seeking to harness profit-driven efficiency for public purposes are increasingly creating organizations with
fractionalized property rights that distribute “ownership” among public and private actors. The resulting hybrids are quite
diverse, including mixed enterprises, public-private partnerships, social entrepreneurship organizations, government-sponsored
enterprises, and various other hybrid forms. Marrying public purposes to private sector efficiency and strategic flexibility
provides a tempting rationale for mixing public and private owners in hybrid organizations. Because public-private hybrids
involve fractionalized property rights, however, they exhibit tension among owners over both strategy and, more importantly,
goals. To understand public-private hybrids, we assess them in terms of six dimensions of property rights: fragmentation of
ownership, clarity of allocation, cost of alienation, security from trespass, credibility of persistence, and autonomy (of both
owners and managers). The unclear allocation of fractionalized ownership rights facilitates the appropriation of financial
residuals and asset ownership opportunistically. Other weaknesses in the property rights configurations of public-private hybrids
create managerial dissonance or opportunistic behavior that typically leads to a narrowing of goals, but sometimes also to
organizational failure.
Keywords: conflicting logics, government-sponsored enterprises, hybrid organizations, mixed enterprises, property rights,
public-private partnerships.
1. Introduction: The rise of the public-private hybrid

Complex and politically contentious problems encourage policy designers to create organizations with ownership
rights distributed between a government and either other governments or, more commonly, private actors. Most
generically and inclusively, these entities are known as “hybrid” organizations. This definition, therefore, excludes
collaborations between separate organizations which “are joint working arrangements between organizations that
remain legally autonomous while they engage in coordinated collective action” (Vangen & Huxham 2012, p. 731).
Because these multiple owners have different goals, hybrids face greater risks resulting from goal tension among
owners and managerial dissonance about how to respond to the tension. Although hybrids “owned” by several
different governments, such as the Port Authority of New York and New Jersey, may exhibit behaviors apparently
more in line with the goals of one or the other of their owners than with their charters, hybrids with ownership
distributed across government and private sector actors are especially prone to both problems.
Hybrids have experienced explosive growth (Dexia 2004; Marra 2007; Hodge et al. 2010; Vining et al. 2014),
suggesting that many institutional designers believe that hybrids offer advantages over other organizational forms.
However, those putative advantages have not as yet resulted in the emergence of a hybrid “dominant design”
(Tushman & Anderson 1986). Indeed, hybrids are extremely diverse in purpose, structure, legal form, and mandates,
as are their labels. Hybrids include social entrepreneurship organizations, social enterprises, mixed enterprises
Correspondence: David L. Weimer, La Follette School of Public Affairs, University of Wisconsin–Madison, Madison, WI 53706,
USA. Email: weimer@lafollette.wisc.edu
Accepted for publication 8 February 2015.
© 2015 John Wiley & Sons Australia, Ltd
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A. R. Vining and D. L. Weimer Property rights in hybrid organizations
(MEs), public-private partnerships (PPPs), government-sponsored enterprises (GSEs), and variants that do not
neatly fit into standard categories (Moe 1979; Perry & Rainey 1988; Kosar 2008; Hayllar & Wettenhall 2013). Until
recently, scholars had not extensively studied hybrids (Lounsbury 2007; Greenwood et al. 2010), although they have
a long history. Early examples from the mercantilist period include the English East India Company founded in 1600
and the Dutch East India Company founded in 1602 (Adams 1996). Hybrids were also common in the formative
years of the United States (US) (Goodrich 1949; Lively 1955).
There are several reasons why public-private hybrids are especially attractive to legislative and bureaucratic
organizational designers. From a normative perspective, public-private hybrids offer the pleasant prospect of
marrying public purposes to private sector efficiency and strategic flexibility (Eckel & Vining 1985; Pargendler et al.
2013). They also offer political benefits. By employing the private sector, legislative and executive actors can obscure
responsibility for performance outcomes, while implying that they are dragging reluctant bureaucrats toward more
“business-like” behavior. This message is attractive to right-of-center politicians who are critical of the Leviathan . . .
but who still wish to provide services to voters. Another political benefit of public-private hybrids is that the private
sector can bring capital to the table – Boardman & Vining (2012) explain why this is a political, not an economic,
benefit. As many governments reach their debt limits, public funds for capital-intensive projects have become
scarcer. The use of hybrids facilitates off-budget expenditures (Vining & Boardman 2008a; Verret 2011; Barlow et al.
2013). Even governments that can fund capital projects often prefer to smooth expenditures over time or shift them
to future governments and taxpayers. Offered an (expected) risk-adjusted satisfactory rate of return, private sector
actors will provide such funds. Indeed, specialist entities will arise to do so. These fiscal rationales can induce even
left-of-center governments to embrace hybrids. Finally, many political and administrative actors are attracted to
“innovative” organizational forms (Weimer 1980; DiMaggio & Powell 1983), even when there is little evidence of
their effectiveness.
The organizational landscape encompasses hybrids that distribute ownership among several governments,
between governments and non-profit organizations, and between governments and for-profit organizations.
Hybrids even include enterprises, now commonly labeled as social enterprises, which, in effect, distribute ownership
between for-profit and non-profit organizations within the private sector (Cooney 2006). All of these hybrid forms
share the tension of multiple owners: that is, they embody fragmented ownership, the most basic dimension of
fractionalized organizational property rights. Therefore, all hybrids are susceptible to conflict between owners,
whether over fundamental goals, the direction of organizational strategy, or the distribution of any surplus valued
by more than one owner (whatever form the surplus takes). The nature and extent of the intrinsic ownership
tension, however, varies considerably across hybrid types; as do other dimensions of fractionalization (especially
when one adopts a cross-country perspective). Our focus here is on those hybrid organizations that involve some
combination of public sector and for-profit private sector ownership relevant to the determination of organizational
goals and strategies. So, for example, we consider a privatized state-owned enterprise in which the government holds
sufficient shares to influence management a hybrid organization. However, for our purposes, we would not consider
ownership of shares by a public entity, such as a pension fund or endowed museum, for purely financial reasons, to
be a hybrid organization.
We argue that, except in the presence of consistent agreement on the goal of joint profit maximization by both
public and private sector owners over time and through changes in political circumstances, public-private hybrids
will tend to exhibit greater tension between owners over goals and strategies than other hybrids. This tension
between owners can be dampened by the opaqueness or multiplicity of the public sector goals, often manifested as
seeming confusion over organizational goals and strategy. Either tension or confusion over goals imposes a cognitive
burden on managers that demands reconciliation. In the extreme, the reconciliation can result in failure to realize
some of the putative goals of the organization or even its dissolution. At the very least, it usually provides hybrid
managers with considerable strategic autonomy and, consequently, more latitude to do things that are in their
interests.
2. Framing public-private hybrid performance

We seek to advance understanding of public-private hybrids by linking a diagnosis of organizational property rights
and the tensions they create to research on the resolution of conflicting organizational logics in three steps: First, we
162 © 2015 John Wiley & Sons Australia, Ltd
Property rights in hybrid organizations A. R. Vining and D. L. Weimer
set out the dimensions of organizational property rights relevant to fractionalized ownership. These dimensions
facilitate analysis of the complexity of hybrid organizations and provide a basis for making the largely descriptive
literature on goal tension in hybrid organizations more relevant to organizational design.
Second, we explain the consequences of fractionalization for public-private hybrids by drawing on the sociology
and the management/applied economics literatures that examine how organizations deal with conflicting demands
placed upon them by complex institutional task environments and organizational fields (Jooste & Scott 2012) and
on principal-principal (Young et al. 2008) and principal-agent theories (Holmstrom 1979; Grossman & Hart 1983;
Dixit 2002).
Third, we link property rights fractionalization to “cognitive dissonance” (Festinger 1957; Cooper & Fazio 1984)
between competing organizational logics for hybrid managers, the ways managers seek to conciliate the dissonance,
and the implications of these efforts for organizational behaviors and outcomes. A common outcome of fraction-
alization is tension that can lead to hybrid dissolution (bankruptcy) or reorganization that unifies ownership (e.g.
through the sale of all government shares in an ME). Sometimes, owners get enough of what they want and
managers can achieve consilience, resulting in some degree of organizational stability. We argue, however, that
consilience does not necessarily imply an efficacious outcome, because one way to resolve cognitive dissonance is to
abandon the equivalence of conflicting goals through de facto acceptance of the dominance of either the public or
private goal (Selznick 1949). Particularly astute (or strategic) managers may balance owners’ goals for some period
of time, but we conjecture, based on opposing “logics of action,” that doing so creates stresses that make hybrids
vulnerable to exogenous shocks to either an organization’s inputs or to the demand for its outputs.
3. Straightforward . . . and not so straightforward . . . property right bundles

Property rights structure the relationships among people concerning the use of things (Furubotn & Pejovich 1972),
including organizations. As use has multiple dimensions, property rights are also complex bundles of claims and
duties (Barzel 1989). Claims and duties can be formal in that they are legally defined and enforced through state
institutions, or informal, gaining force through shared norms or self-enforcement (often both are required). Ideally,
the selected property rights regime creates incentives for owners to maximize the benefits from their rights and to
minimize the costs of compliance with their duties. Holding constant any externalities, generating such incentives is
relatively straightforward in the presence of unified ownership of an asset or organization. In the presence of
fragmented ownership, however, greater potential for misalignment of benefits and costs arises. Other impediments
to the effective exercise of property rights tend to be correlated with this fragmentation, although not perfectly
(therefore, they require independent analysis).
Organizational designers seeking to promote goals through hybrids face the task of structuring property rights
so that incentives align to promote jointly held goals. In order to understand this challenge, it is useful to first
disaggregate property rights into their important dimensions. After doing so, we use the elucidated dimensions as a
basis for comparing the public-private hybrid with pure public and private organizations.
4. Property rights arrangements: Public-private hybrids versus unitary organizations

Owners and managers of public-private hybrids face a number of problems flowing from ownership fragmentation.
First, the managers face a trade-off between the market value of the organization and public purposes. Relatedly, the
public sector goal or goals may be vague and open to a multiplicity of plausible interpretations (Vining 2011). Thus,
a principal-principal tension between public and private owners is likely. Second, uncertainties relating to other
dimensions of property rights are likely to affect the behavior of managers and can exacerbate principal-agent
divergence. Although it is possible that the outcome of these tensions could be efficacious, it is usually not.
Drawing on frameworks for analyzing property rights systems in general (Riker & Weimer 1993; Vining &
Weimer 1998), we focus on six dimensions of property rights that are relevant to understanding the behavior and
performance of public-private hybrids. To sharpen the analysis, we compare hybrids to pure public and pure private
organizations on these dimensions. We do so because these are the canonical alternative organizational designs.
Table 1 summarizes what we consider to be key differences across the three organizational types. These ideal types
abstract from important details, such as the problem of multiple principals for public agencies, complex stock
© 2015 John Wiley & Sons Australia, Ltd 163
Table 1 Property rights dimensions: Differences between unitary and hybrid organizations
Public Organization Public-private Hybrid Private Organization
Degree of fragmentation Usually singular, but Two at a minimum; goal Can be extensive; free
of ownership principal-agent problems disagreement riding in joint stock
companies
Clarity of allocation Ex ante rules make internal Lack of clarity resulting from Both internal and external
allocation clear; allocation difficulty of writing allocations generally
between organizations may complete contracts clear
be unclear
Cost of alienation Very high for managers; High because of need for Low
generally high for negotiation among
government principals multiple principals
Security from trespass Depends on rules and norms High cost of public Low if strong rule of law
concerning corruption monitoring risks diversion
to private owners
Credibility of persistence Depends on political Relatively low because Depends on stability of
environment depends on both strength regime and
of rule of law and political commitment to rule of
commitment to law
arrangement
Autonomy Little managerial discretion Generally considerable Much managerial
over internal allocation of managerial discretion over discretion over internal
rights internal allocation of rights allocation of rights
arrangements for private sector firms, and the degree and nature of ownership fragmentation within hybrids, all of
which are relevant to actual organizational performance. Subsequently, we look at several common public-private
hybrids in terms of property rights fractionalization.
4.1. Ownership fragmentation

The first, and most fundamental dimension of property rights is the degree of ownership fragmentation: the number
of parties who have claims to organizational assets or the financial residuals the assets create. With a single owner,
there is no potential for tension among owners (although there may be tension between the owner and managers).
Fragmentation of ownership begins at “an N of 2” (owners). Fragmentation beyond a few owners (but, especially
among large numbers of owners with equal fractions of ownership) inevitably results in some separation of
ownership from control. Managers then exercise de facto decision rights (Berle & Means 1932; Jensen & Meckling
1976). Once this occurs, ownership fragmentation creates incentives for an individual owner to free ride on the
monitoring of managers. The free riding problem tends to worsen (perhaps in an exponential fashion) as the
number of owners increase. Indeed, Adam Smith was famously doubtful of the potential survivability of the
joint-stock design (Anderson & Tollison 1982, p. 1241) because of the potential for free riding, noting that “the
greater part of those proprietors seldom pretend to understand any thing of the business . . . and when the spirit of
faction happens not to prevail among them, give themselves no trouble about it . . .” As we know, his skepticism was
somewhat unjustified, but only as a result of the development of hundreds of years of external institutional
regulation (Stigler & Friedland 1983). It has also been pointed out that the wide dispersion of share ownership is not
that common, especially when viewed from a global perspective (La Porta et al. 1999).
Free riding in the monitoring of managers creates potential inefficiency even when owners share the same goal.
However, when owners have different goals, such as with respect to short versus long-term returns or, most relevant
for our purposes, with respect to profit versus public purposes, the need to conciliate goals creates the potential for
greater inefficiencies.
Public-private hybrids clearly embody some minimum level of fragmented ownership: there is at least one public
owner and one private-sector owner. Recognition of tension between owners specifically in public-private hybrids
is not a new insight. For example, Adams (1996, p. 16) points out that in early European colonial trading hybrids:
“Even when [patrimonial principals were] engaged in joint enterprises, they were wont to aim at goals that were
contingently incompatible at best (the monarch seeking territorial aggrandizement and members of the estates
pursuing mercantile profit, to put one common situation crudely).” This quote echoes Smith’s sardonic comment
about the dual owners of the English East India Company, namely that “no two characters seem more inconsistent
than those of trader and sovereign” (Smith 1776, as cited in Hanke 1987, p. 3).
The literature on conflicting institutional logics also provides some theory and enlightening case studies on the
tension of multiple owners, conflicting goals, and conflicted identities within the broader hybrid organizational
domain. However, only one of the empirical case studies of hybrids in the conflicting logics literature pertains to a
public-private hybrid that involves the starker trade-off between an owner with a profit maximization goal and an
owner with a (non-profit-maximizing) social purpose (Saz-Carranza & Longo 2012). Rather, these studies focus on
social entrepreneurship organizations and non-governmental organizations that engage in quasi-commercial activi-
ties, such as microfinance (Friedland & Alford 1991; Austin et al. 2006; Kraatz & Block 2008; Pache & Santos 2010;
Jay 2013; Lee & Battilana 2013; Pache & Santos 2013). Although these organizations embody internal “conflicting
logics” relating to profit versus public service, they do not involve multiple owners with sharply different goals. One
might expect the tension over conflicting logics to be muted. However, the evidence suggests that these tensions are
still very difficult to manage (Glynn 2000; Cooney 2006; Fiol et al. 2009; Battilana & Dorado, 2010).
Most pertinent to an analysis of public-private hybrids from an empirical perspective, owner tension over goals,
goal ambiguity, and managerial dissonance have all been observed in PPPs (Boardman & Vining 2012), in MEs
(Vining et al. 2014), and related to GSEs (Koppell 2001).
4.2. Clarity of allocation

Clarity of allocation refers to the extent to which property rights are comprehensively and unambiguously assigned
and specified among owners and other claimants. De facto allocations typically supplement de jure rights, which are
often incomplete. Even in cases of highly fragmented ownership, such as occur with common property resources,
clarity of allocation can be crystallized if the owners can self-organize (Ostrom 1990). If not, a lack of clarity
generally increases inefficiency and discourages worthwhile investment (Knack & Keefer 1995).
Both public agencies and private sector firms generally exhibit clear allocations of property rights. Public
agencies and their managers are subject to numerous ex ante rules that provide clarity of allocation, especially civil
service rules on the prohibition of organizational members from taking financial residuals as income and on
specification of how revenues can be used (Johnson & Libecap 1989). Although agency managers may muddy the
clarity of allocation by creating organizational common property, the rights framework usually gives them the
opportunity to clarify it at the level of the individual organizational member (Vining & Weimer 1999). Property
rights over outputs or inputs shared with other public agencies, however, may not be clear. For example, a probation
bureau may have no say in the number or type of inmates discharged to it. Nonetheless, allocations of property rights
to public agencies in jurisdictions with strong commitments to the rule of law are generally quite clear. However,
absent strong rule of law, corruption can produce a substantial lack of clarity.
The allocation of property rights to assets in private sector firms is typically very clear. Indeed, the availability of
willing investors depends crucially on clarity of ownership of the residual. Civil law frameworks (contract, property,
and tort) provide defaults for many aspects of ownership not explicitly set out in contracts. Nonetheless, clarity can
be clouded to some extent by fractionalization of rights inherent in the joint stock company (Berle & Means 1932;
Jensen & Meckling 1976). Multiple classes of shares can exacerbate lack of clarity and create owner tension. This can
result in misalignment of incentives across owners, but also between owners and managers – agency loss – as we
discuss further. However, the crucial point is that, in the private sector, firm owner tension around clarity of
allocation is, when it occurs, about who gets the residual, not about what it should be and how it should be measured.
Clarity of allocation of property rights in public-private hybrids is dimmed by the very fact of goal incommen-
surability. At the design stage (behind the “veil of ignorance”), of course, public and private principals can mitigate
this looming tension by detailed contract writing. However, the complexity of the world makes writing complete
contracts difficult for all organizations. In addition to “procedural incompleteness,” which results from incomplete
information about contingencies, asymmetry in bargaining, and uncertainty about compliance, contracts may also
have “strategic incompleteness,” which may be introduced by a party anticipating an advantage during renegotiation
(Cooley & Spruyt 2009). Administrative law fills many of the gaps for public agencies and civil and criminal laws do
so for private firms. These function as (quasi-) “constitutions.” In contrast, at the moment, the legal framework
around hybrids in most countries is sparse and provides little background clarity. The mixing of private and public
assets without detailed specification of responsibilities for their maintenance over extended time periods is likely to
result in especially unclear property rights, potentially creating common property problems within the organization.
However, as we further discuss in the conclusion, greater ex ante attention to the development of public-private
hybrid “constitutions” might contribute to reduced property rights ambiguity.
Calculating and specifying ownership of the organization’s financial residual (whether positive or negative) is
relatively straightforward. In most cases, however, if the residual is only meant to be fiscal, there is little normative
rationale for public-private hybrids (again, with the exception of those cases where the public principal also wishes
to maximize profit exclusively). However, specifying and calculating the total residual that is valued by both
principals is likely to be difficult (if this residual is difficult to specify and calculate, then it is difficult to maximize
in practice). If some output is either not sold in markets or sold at non-market prices, then total hybrid “revenue”
must be imputed. Further, when output depends on either the use of public assets with opaque user costs (because
they are not traded in markets) or the use of private assets whose user costs may differ from market rentals (because
they are locked into mixed configurations), the calculation of the residual is contentious. These valuation problems
blur the allocation of rights to the residual. On this dimension of property rights, we conjecture that the allocation
of property rights in public-private hybrids is always somewhat unclear.
4.3. Cost of alienation

Cost of alienation refers to the ease with which current property rights can be reallocated. Low cost of alienation
facilitates the movement of resources to their most productive uses as circumstances change. De jure allocations
usually facilitate low-cost alienation, while de facto allocations often make it costly. However, de jure allocation
among multiple owners often involves high costs of alienation for an individual fractional owner. The need for
agreement by all owners on alienation provides every owner with leverage in preserving commitment to particular
goals or strategies. This is valuable for the maintenance of cooperation and stability (Araral 2009), but detrimental
to the efficient use of assets across organizations.
By design, the cost of alienation of the assets of most public agencies is almost always very high. Mechanisms that
allow managers to sell unwanted assets or even trade assets with other public agencies are uncommon. Instead,
alienation typically requires collective action by elected government principals or oversight agencies. The conflicting
interests of multiple stakeholders make such collective action costly for the principals. Consequently, public agencies
tend to face high costs of alienation with respect to both internal assets and to the termination of the agencies
themselves – as Lake (2015) argues, vested interests make reform of ineffective public agencies more difficult, but it
also increases their credibility of persistence. The cost of alienation of the assets of private sector firms is relatively
low. Clear allocations of rights facilitate the sale of the firm’s assets. Although there may be a collective action
problem when ownership is fractionalized among stockholders, the firm itself, or parts thereof, can be readily sold,
thus facilitating firm termination, takeover, or merger.
The cost of alienation of assets for public-private hybrids is typically high because decisions about the sale of
assets or termination can often only be made through direct negotiations between the public and private principals.
Depending on the nature of the initial allocation of rights to the assets of the hybrid, the cost of alienation may well
be as high as for a public agency. Yet with respect to the potential termination of a public-private hybrid, the
alienation cost is likely to be even higher than for a public agency if the government principal has to negotiate with
the private principals over compensation or post-termination liability. A government shareholding in a commer-
cially profitable ME can be an exception (as discussed further), unless there is strong political opposition to public
disinvestment (which there often is).
4.4. Security from trespass

Security from trespass refers to the extent to which duty bearers respect claims. Effective enforcement of trespass
through the institutions of the state can provide high levels of security. However, ineffective enforcement of de jure
allocations or weak norms supporting de facto allocations results in poor security that deters productive invest-
ments, diverts investments to self-protection, or even induces predatory behavior (Baumol 1990). The strength of
the rule of law largely determines the security of property from trespass in both public agencies and private sector
firms. A major purpose of US civil service reform was to prevent public assets from being diverted either to private
gain or partisan political purposes (Johnson & Libecap 1989). The managers of private sector firms are usually
incentivized to preserve assets for organizational use; larger private sector firms typically strengthen the security of
their assets by investing in their own enforcement, especially in terms of preventing the unsanctioned diversion of
assets by organizational members.
The security of assets within a public-private hybrid is likely to be less than in either unitary form simply because
the residual is less well specified, as discussed above. As a result, managers may face weaker incentives to protect
assets. At the very least, protection will be harder work. The resulting weaker protection may manifest itself in the
shifting of costs from private to public assets or the shifting of risk from private to public owners. In extreme cases,
especially in environments with weak rule of law and limited oversight capacity of public owners, managers may
actually loot public assets. This occurred during the initial de facto privatization of state enterprises in the formerly
socialist countries (Campos & Giovannoni 2006).
4.5. Credibility of persistence

Credibility of persistence refers to the strength of the expectation that rights will persist over time. Of course, rights
holders of all kinds always face a risk that governments will alter de jure rights in ways ranging from the exercise of
eminent domain to outright nationalization. Owners may also face risks related to changes in internal norms that
support the emergence of de facto rights (e.g. those that legitimize “squatting”). High credibility of the persistence
of property rights facilitates the efficient use of resources over time: the willingness of claimants to defer immediate
consumption to allow investments that permit greater consumption in the future depends on it. Credibility of
persistence is also undermined if the allocation is temporally uncertain – trespassers may be able to acquire de facto
or even de jure property rights, especially in jurisdictions with weak institutions (Besley 1995).
The credibility of persistence of all organizational property rights is highly dependent on the broader political
and institutional environment (North 1990; Rodrik et al. 2004). Property rights are intrinsically less credible in
North Korea, Venezuela, and Argentina than in most other places for reasons of regime, government, and history,
respectively. However, even in more favorable institutional environments, the credibility that property rights of, and
within, public agencies will persist depends on the stability of the political and legal environment. For example, in
the recent Tsilqot’in case, the Supreme Court of Canada considerably strengthened the property rights of First
Nations (aboriginal Canadians) to traditional land and weakened those of government agencies and those with
subsurface resource exploitation property rights.
In stable institutional environments, civil service systems generally provide credibility to public employees that
encourage them to invest in agency-specific human capital that may have low market value. Threats of organiza-
tional termination reduce the credibility of this commitment. In democratic political systems, there is always a “risk”
of governmental change that can fundamentally alter attitudes toward organizational designs. The credibility of
persistence of property rights in private sector firms generally depends on the strength of the rule of law and the
stability of the regime that provides it. Strong rule of law in stable regimes provides credibility; either weak rule of
law or an unstable regime undercuts it. To the extent that de facto property rights within an organization depend on
norms, the possibility of the norms changing, say because of changes in corporate culture, can undercut the
credibility of persistence.
The credibility of persistence of property rights within a public-private hybrid is always somewhat uncertain
because it depends on the commitment of the political owner, which varies with the ideological preferences of the
governing party. Because of electoral turnover, these preferences are more variable than those of private owners
seeking profit. Credibility suffers, for example, when the private principal must rely on contract continuation or
renewal by the political principals, as is often the case with PPPs. Anticipation of the possibility of cancellation or
non-renewal reduces the incentive of private managers to maintain assets as the closing date approaches. Private
owners know that the government has the power to declare force majeure to void the contract during unfavorable
circumstances, such as economic or fiscal crises. More mundanely, credibility may be undercut if the future
allocation of rights is not very clearly specified or specified without attention to how changes in allocation should
respond to changing circumstances.
Because specific kinds of hybrids tend to have specific ideological appeal (although for whom will vary with the
type of hybrid), they are intrinsically quite vulnerable on the credibility of persistence dimension. If a right-of-center
government, for example, gains power, it can relatively easily and quietly engage in ME termination by selling its
shares (Boardman et al. 2014). If a left-of-center government gains power, then it can eliminate an existing PPP at
low political cost by buying out the private owner for a premium. The credibility of persistence is also lowered (from
the perspective of the public principals) if a private owner can exit the hybrid without substantial penalty. Private
owners are usually able to abandon assets (liabilities) through bankruptcy if continued participation becomes
unprofitable. The knowledge that terminating participation in this way is possible creates a moral hazard – private
owners have incentives to encourage managers to make risky decisions with the expectation that they will profit from
success, but avoid the full costs of unfavorable outcomes. As we document later, such opportunistic behavior has
been common in PPPs, especially where private owners have been allowed to use stand-alone subsidiaries to
participate in the PPP (Boardman & Vining 2012).
4.6. Autonomy
The degree of autonomy measures the extent to which pertinent actors retain discretion within a property rights
system (Vining & Weimer 1998). In the context of organizational property rights (as opposed to individuals’
property rights), autonomy has two facets: the autonomy of owners and the autonomy of managers. Owner
autonomy assesses the extent to which owners can actually exercise their property rights (reasonably) free from
interference from external actors. Managerial autonomy refers to the opportunity that managers have to restructure
property rights within the organization. Some level of managerial discretion is essential because organizational
efficiency requires that resource use be adjusted in response to changing environments. Managerial autonomy
facilitates this strategic readjustment. However, too high levels of autonomy can result in significant principal-agent
problems.
Within public agencies (at least in developed countries), ex ante civil service rules and oversight agencies limit
the autonomy of public managers over the use and reallocation of property rights. In contrast, managers of private
sector firms are less constrained on a day-to-day basis. Nonetheless, a high level of managerial autonomy in private
sector firms creates its own problems. “Hidden information” and “hidden action” confront organizational designers
with the problem of minimizing “the costs of structuring, monitoring, and bonding a set of contracts among agents
with conflicting interests, plus the residual loss incurred because the cost of full enforcement of contract exceeds the
benefits” (Jensen & Meckling 1976, p. 305). Nonetheless, competition in the firm’s product markets (Alchian &
Demsetz 1972) and contestability of ownership of the firm (De Alessi 1983) ensure that agency cost will be
minimized, at least over time. The rise of activist investors and aggressive hedge funds demonstrates this reality (Brav
et al. 2008). The market, then, tends to rely on ex post controls to limit inappropriate managerial discretion.
However, evidence suggests that firms with dispersed ownership (i.e. high levels of ownership fractionalization)
experience greater degrees of agency loss because these ex post controls are somewhat less effective.
Is it likely that public-private hybrids occupy an intermediate position with respect to autonomy? Although most
holders of versions of the “best of both worlds” view of hybrids are not very explicit about this, a reasonable
assumption is that they assume that the level of managerial autonomy would be “just right” in the public-private
hybrid, or at least in the ME version. In contrast, we postulate that it is likely that managers in hybrid organizations
have greater de facto autonomy than either their public or private sector counterparts. A higher level of managerial
autonomy flows primarily from the intrinsic lack of clarity of ownership that results from multiple owners with
different goals. Only managers are in a position to resolve this tension. Therefore, they have discretion and
autonomy. Of course, the high cost of alienation and the weakened security from trespass associated with many
kinds of hybrids (described above) only reinforce their autonomy. We argue that the way managerial autonomy is
exercised in the public-private hybrid is so important to behavior and outcomes that it is worth exploring in further
detail.
5. Managerial autonomy, cognitive dissonance, and resolution

Resolving goal tension between owners is a primary strategic task of public-private hybrid managers. If managers
have no discretion to do so, then the hybrid may dissolve quickly under the weight of the unresolved tension. In most
cases, however, owners are likely to cede authority to managers to try to resolve tension. In attempting to do so,
managers face cognitive dissonance. Cognitive dissonance is “a negative state of uncomfortable arousal resulting
from an inconsistency between two cognitions, or between behavior and some cognition” (Maertz et al. 2009, p. 68).
Although the literature posits somewhat different causal mechanisms, it finds that individuals and organizations
usually do resolve dissonance because it is a highly unpleasant cognitive state (Wicklund & Brehm 1976). The
literature also observes that the resolution does not have to be (although it may be) rational in any larger sense
(Ashforth & Mael 1989; Bazerman et al. 1998; Roccas & Brewer 2002).
The actual process of achieving consilience has been most widely studied in the context of the conflicting logics
of social enterprise hybrids (but also see Boardman & Vining 2012). The empirical literature observes a variety of
managerial and organizational responses (Greenwood et al. 2014), but it appears that the most common response to
conflicting logics is the adoption of a “dominant logic” (Selznick 1949; Lounsbury 2007). Alternatively, managers
attempt to avoid this outcome by “decoupling” (Boxenbaum & Jonsson 2008; Bromley & Powell 2012), which occurs
when “under conditions of competing institutional logics, organizations symbolically endorse practices promoted
by one logic while actually implementing practices promoted by another” (Pache & Santos 2013, p. 974; Townley
2002). This form of dissonance resolution, however, is obviously stressful to managers and is likely fragile. It amounts
to adopting a dominant logic, but with camouflage. Other goal balancing responses include “selective coupling”
(Pache & Santos 2013) or some version of pragmatic compromising (Oliver 1991; Kraatz & Block 2008). In many of
these competing logics contexts, though, compromise of some kind is inevitable (Reay & Hinings 2009) – even
though doctors and administrators may have competing logics, hospitals are not going to dissolve.
In the public-private hybrid, we argue that the divide between public and private goals is the most orthogonal
and, therefore, often puts managers on a knife-edge. The most common managerial behavioral response to this
dissonance is to adopt a dominant logic: climbing off – or falling off – the knife-edge and embracing either the public
purpose or profit as the dominant mission (Teasdale 2012). We conjecture that most managers experience genuine
cognitive dissonance when on the knife-edge, but some may simply act as if they are experiencing it for strategic
reasons. Pointing out the incongruent goals and throwing up one’s hands is a resolution that could represent either
response (Saz-Carranza & Longo 2012). However, an apparent resolution may not ultimately satisfy either owner.
When the resolution fails, so too may the hybrid.
6. Applications
Although all public-private hybrids are prone to the behavioral process described above, the risk of failure, whether
in terms of diversion from public goals, unachieved anticipated efficiencies, or termination, depends on the par-
ticular form of the hybrid, the nature of the specific institutional environment, and on the skills of monitoring
owners and boundary-spanning managers. We consider three prominent public-private hybrid forms: MEs, PPPs,
and GSEs. Extensive empirical evidence suggests that MEs often outperform public agencies and sometimes fully
private firms. A considerable, but less systematic, body of research identifies substantial risks inherent in PPPs,
including outright failure. Although there are relatively few studies of government sponsored enterprises, several
prominent cases point to major risks, including the creation of political resources that allow the resolution of tension
in favor of private stockholders.
6.1. Mixed enterprises

Mixed enterprises vary greatly in their characteristics. The key unifying element in all ME forms is the use of shares
to specify the allocation of ownership rights between government and private sector owners. Vining et al. (2014)
identify distinct categories of MEs (excluding PPPs), including “domestic government” and “golden share” MEs. In
this section, we focus on some managerial behaviors that are likely to flow from the particular fractionalizations of
property rights that manifest in these two forms.
The domestic government ME is the public-private hybrid with the greatest clarity of allocation around
ownership property rights because they are delineated by the percentage of shares owned. The share price (and
changes to it) also transparently capitalizes changes in managerial behaviour relating to profit. However, because
shares are dispersed over public and private shareholders with different goals and because, as well, there may be share
dispersal over many private sector shareholders, managerial discretion is usually high. In less competitive industries
(e.g. those with scarcity rents or characterized by natural monopoly), it is likely that managers will resolve cognitive
dissonance by “falling off” the knife-edge toward profit maximization as share price is the least ambiguous signal of
their performance. Effort that improves profit will raise the share price. If the government also desires profit
maximization, it is a “profit collusion world” (Vining et al. 2014) rather than either the “best of both worlds” or the
“worst of both worlds.” If rent extraction is the dominant public sector goal, then there may be relatively little owner
tension and minimal managerial dissonance. ME oil companies, such as Statoil, largely function in this kind of
world.
Unless there is a strong normative rationale for government intervention, however, governments can normally
achieve a fiscal return at lower cost through tax policy. This realization was almost certainly a reason for the full
privatization of many MEs in developed countries in the 1970–1990s. However, a review of cross-national evidence
suggests that when regulatory and legal institutions are weak, continued government ownership of shares may be
beneficial as a tool for monitoring managers (Marcelin & Mathur 2015). In developed countries, some empirical
evidence suggests that government appointed members of boards of directors can contribute to the achievement of
public goals by natural monopolies (Marra 2007; Monteduro 2014). In more competitive situations with strong
institutions and legal frameworks, profitability is harder to come by so that managers may get off the knife-edge by
emphasizing governmental goals that limit their capacity and explain their inability to generate profits.
Vining et al. (2014) argue that domestic government MEs are more oriented to cost-efficiency than state-owned
enterprises (SOEs), even though they are subject to ownership fragmentation, because their overall property rights
regime has greater clarity and certainty and reduces principal-agent problems. They argue that the empirical
evidence supports this conclusion. The evidence strongly suggests, however, that MEs are clearly inferior to fully
private sector firms in this regard (Boardman & Vining 1989; Villalonga 2000; Megginson & Netter 2001; Chong et
al. 2004; Nellis 2012). Therefore, the normative argument for engaging in an ME rests on a strong rationale for
governmental socio-political goals. Many scholars have challenged the normative rationale for such goals if the ME
is operating in a well-functioning and reasonably competitive market (Boubakri et al. 2009; Nellis 2012). Nonethe-
less, many countries still have industrial sectors dominated by SOEs and MEs where the normative rationale for
public ownership is weak (e.g. Le et al. 2014).
It might appear that property rights in a domestic government “golden share” ME are as clear as in the standard
domestic government ME described above as all common shares are owned and traded by private sector sharehold-
ers. However, this is not the case. Clarity around owner goals is clouded by the ambiguity surrounding the potential
grounds for exercise of the golden share (Gerner-Beuerle 2012). Bortolotti & Faccio (2009, p. 2908) explain that
golden shares permit “the government to make important decisions in the company, such as to veto proposed
acquisitions, or alternatively, to impose constraints on other shareholders, such as caps on their share of the voting
rights.” In short, golden share ownership always creates ambiguity about goals and casts a shadow over managerial
incentives. As a result, we conjecture that managerial behavior is likely to be temporally unpredictable: mostly
profit-maximizing behavior in response to private shareholders, but sometimes responding to the golden share
shadow (e.g. Kocenda & Hanousek 2012). If the response to the shadow is anticipatory, as we expect, then it is hard
to link the behavior directly to the exercise of government ownership, which may be a reason that governments
employ the golden share strategy in the first place.
Overall, what can we conclude about the effects of fractionalization in the case of MEs? The empirical evidence
suggests that the signalling role of shares does appear to matter in that MEs exhibit better cost-efficiency than SOEs
(Majumdar 1998; Backx et al. 2002; Chiu 2003; Filippini & Prioni 2003; Ghosh 2008, 2010; Lin & Zhang 2009; Yang
& Lui 2012; Boitani et al. 2013; Hartley & Medlock 2013). Even more studies show that MEs are more profitable than
(somewhat) comparable SOEs (Boardman et al. 2014), but the welfare implications of these findings are more
ambiguous as the profitability may flow from the exercise of market power. Yet as we discussed earlier, a great deal
of evidence suggests that MEs are generally both less cost-efficient and less profitable than fully privatized firms. For
a variety of reasons it seems clear that many governments are not going to be persuaded to privatize their oil SOEs
fully so that an ME is likely a better choice than an SOE (Wolf 2009; Eller et al. 2011; Hartley & Medlock 2013).
Further, creating an ME may also be a better choice than full privatization when regulatory and legal institutions are
weak (Marcelin & Mathur 2015).
6.2. Public-private partnerships

The public-private partnership (PPP) label covers many different organizational forms (Hodge & Greve 2007). The
number of PPPs has grown enormously in many countries over the past 30 years (Hodge et al. 2010). The canonical
PPP is a long-term infrastructure contract in which a private sector corporation or consortium finances, designs,
builds, operates, and maintains some infrastructure ultimately owned by the public sector. This might be a highway,
bridge, water treatment plant, or hospital. Ownership of the infrastructure ultimately reverts to the contracting
government, but often only after an extensive concessionary period (e.g. 30 years). The financing activity is usually
central to a PPP, but other contracted activities vary enormously. Thus, for example, a PPP might entail only private
sector financing or the design and building of some facility as well. In exchange for providing the finance and other
services, the private sector consortium receives a stream of payments, sometimes based on tolling, sometimes linked
to usage levels (or output), or “shadow tolling.”
Public-private partnerships are unlike MEs in a number of important respects. However, they do effectively
involve some sharing of property rights, although the allocation of the formal ownership is usually sequential rather
than simultaneous. In many cases, though, numerous aspects of the allocation of property rights are unclear (Vega
2013/14). One reason is that the language of most actual PPP contracts allocates some important property rights to
the public owner during private control.
In spite of the partnership language, goal tension between owners is often stark: the government is, or should be,
interested in cost (price) minimization, while the private participant is interested in profit maximization. Nonethe-
less, we postulate that PPPs usually do not result in as much managerial autonomy as found in MEs. First, in most
PPPs, managers are closely monitored by private sector principals and may return to direct employment by them.
Second, most PPP contracts clearly bestow managerial authority on agents of the private owners, as the private
owners bring both capital and technical expertise. Therefore, managers who perceive themselves as working for the
private owners will focus on private owner profits, and are likely to exhibit somewhat lower levels of dissonance.
However, along with private owners, PPP managers are likely to be in conflict with public owners.
Considerable evidence has accumulated showing high rates of renegotiation of contract terms, a likely indicator
of tensions arising from fractionalized property rights. For example, Estache and Saussier (2014), drawing on a
variety of studies, find renegotiation rates ranging from 40 percent for highway projects in the US to 92 percent for
water projects in Latin America and the Caribbean. Of course, governments cannot credibly commit future gov-
ernments; therefore renegotiation could also result from governments’ opportunistic ex post alteration of property
right allocations.
A great deal of evidence suggests that tension over goals has led to opportunistic bankruptcies or other
behavior (such as repeatedly raising tolls) that has forced governments to buy out private partners. Studies that
document these kinds of tensions include Acerete et al. (2009), Acerete et al. (2011), Reeves (2008), Vining &
Boardman (2008b), Boardman & Vining (2012), Bloomfield (2006), Hodge (2005), Johnston (2010), Beh (2010),
Bharti & Ganesh (2010), Dagdeviran (2011), Hayllar (2010), Jarvis (2010), Turhani (2013), Mouraviev et al.
(2012), Jooste & Scott (2012) & Estache (2006). For example, based on their assessment of PPP arrangements for
infrastructure investment in the water, waste, transportation, and education sectors in Portugal, da Cruz et al.
(2012, p. 737) conclude: “the extreme complexity involved in the whole life-cycle management of
these companies usually leads to a poor protection of the public interest.” (For further evidence, see Boardman &
Vining 2012).
We pick one major PPP to very briefly illustrate in more detail some of the conflict, confusion, and failure created
by a lack of clarity of property right allocations (although we could pick many others). Metronet was a £15.7 billion
PPP signed in 2003 that was championed by the then United Kingdom (UK) Chancellor of the Exchequer, Gordon
Brown, who subsequently became Prime Minister. Metronet was one of the largest infrastructure projects in the
world until it collapsed into bankruptcy in 2007. Metronet illustrates almost all dimensions of property rights
problems (see Vining & Boardman 2008b; Jupe 2009; Ricketts 2009). Goal conflict emerged almost immediately
when the public and private parties disagreed on the fundamental allocation of property rights: the government
acted as if it had purchased an output-based fixed price contract, while the private sector consortium acted as though
it had agreed to a series of heterogeneous, cost-plus contracts. The lack of clarity of property rights also included
vagueness, and ultimate disagreement, on the extent of risk-transfer (who was responsible for negative fiscal
residuals). Not only was most risk not transferred to the private owners, but the risk that was transferred quickly
ended up in the hands of very widely dispersed debt-holders. This is a quite common outcome in PPPs (Estache et al.
2007). In aggregate, these factors opened up the PPP to endemic opportunism. As a result, private principals
probably made money in the end, in spite of Metronet’s bankruptcy.
At least in the UK (although as a result of costly experience), the importance of having an ex ante agreement on
the distribution of risks is now recognized. Since 2007, the Treasury has required that extensive “risk matrices” that
attempt to identify all possible risks (and the responsibilities for bearing them) be appended to PPP contracts (Iossa
& Martimort 2014). Of course, the more complex and the longer the time horizon of the project, factors that
typically make the PPP politically more attractive, the less likely it is that all important risks will be anticipated and
included in its risk matrix.
6.3. Government-sponsored enterprises: Fannie Mae, Freddie Mac, and others

An important type of hybrid is the GSE, a stockholder-owned organization created by government to promote a
public purpose (Muslof & Seidman 1980; Perry & Rainey 1988; Stanton 2007). Although publically obscure GSEs
during most of their history, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac) were cast into the public spotlight when their continued operation required
a bailout in response to the US housing crisis in 2008.
Their origins lie in efforts by the federal government to increase liquidity in housing markets during the Great
Depression by creating a secondary market in mortgages. Their transformation into hybrids occurred in 1970 when
Congress formulated them as separate GSEs by requiring sale of their assets to private investors through common
stock. Investors were interested in profit, but the GSEs socio-political goals remained. With ownership by private
shareholders, the boundaries of these public goals always remained opaque. To foster the public goals, their features
included lines of credit with the federal treasury, an implicit (and actually realized) federal guarantee of their
securities, exclusion from many regulations that apply to private firms, and appointment of a minority of members
of their boards of directors by the president. At least initially, these provided them with significant competitive
advantages. While they did not exactly have a license to print money, they effectively had a license to make money.
Prior to the bailout, their boards selected managers and determined their compensation. Not surprisingly, they
remunerated themselves like the private sector.
Fannie Mae and Freddie Mac initially purchased and held mortgages originated by local banks but later began
securitizing portfolios of mortgages that were sold to investors internationally. During the 1990s they began to face
competition from private firms in the securitizing of mortgages. Although managers maintained standards on
mortgage origination to minimize default risk even into the mid-2000s, pressure from stockholders led them to
increase the volume of mortgages securitized and to relax loan standards (Boyack 2011). Managerial remuneration
tended to follow volume so managers had little incentive to resist something in their interest and which seemed
congruent with a fairly vague public purpose. The perception of a government guarantee for Fannie Mae and
Freddie Mac securities, of course, contributed to their sales, even amid growing concerns about the quality of the
mortgages they included.
The federal guarantee for Fannie Mae and Freddie Mac, credible because they were “too big to fail,” created a
moral hazard that encouraged managers to take on risk that was beneficial to them, but not to the government
(Verret 2011). Government “owners” were so diffuse and disparate that this was almost inevitable. The Federal
government ended up with a property right to a liability. Koppell (2001) argues “too big to fail” was buttressed by
opportunistic managers and directors. These GSEs enjoyed the political advantages of both public and private
organizations and were more politically influential than they would be if they were either fully private or fully public.
On the private side, they had financial resources that they used to fund contributions to important Congressional
committee members, they pointed to constituent-valued business that they conducted in every congressional
district, they used loyal allies in the housing sector, and they had a centrality in the network of organizations involved
in housing finance. On the public side, they emphasized their widely valued public mission and (comparable to a
federal agency) substantive expertise. The result was a financial failure that required a substantial government
bailout.
Considering the fundamental weakness inherent in GSEs, Stanton (2009) argues for the replacement of Fannie
Mae and Freddie Mac with a corporation wholly owned by the federal government. An assessment of the Farm
Credit System, one of the other prominent federal GSEs, found that it creates inefficient risk sharing (Jensen 2000).
Although financial GSEs, which have been extensively studied, may be particularly prone to goal tension, we
expect that other GSEs will not be exempt from such tensions. For example, in 2011, at the request of the governor,
the Wisconsin legislature replaced the Department of Commerce with the Wisconsin Economic Development
Corporation (WEDC) to provide financial assistance to businesses in the state. The WEDC operates largely as a
private firm but with predominately public funding (Shanovich 2013). It is governed by a mixed board of five public
officials (the governor, legislators, and cabinet members) and eight private members. Both legislators and the
non-partisan Legislative Audit Bureau criticized WEDC on multiple grounds: “The audit bureau report . . . found
that WEDC didn’t require financial statements from companies receiving incentives; gave awards to ineligible
businesses and ineligible projects; and awarded nearly $1 million in tax credits to companies for actions taken before
they had signed their contracts with the state” (Stein 2013). WEDC also failed to collect and report required data on
job creation. Although WEDC survived, the legislature withheld its budget for a period and imposed greater
oversight. Whether it will ultimately be more effective than the department it replaced remains to be seen.
7. Conclusion: Lessons for policy design

We have argued that public-private hybrids inevitably involve complex configurations of property rights that may
have negative implications for organizational performance. This cross-sector fractionalization typically creates
tension over goals that must be accommodated in some way, usually through cognitive dissonance resolution that
allows managers to embrace one of the goals as dominant. What do we know about when it is normatively desirable
for organizational designers to select hybrid forms despite their inherent goal tensions?
We draw heavily on the broader property rights literature to inform our discussion. Although this literature has
a strong normative orientation toward efficiency, it leaves a large gap between simple models of complete contracts
and the complexity of actual organizations in varied and changing environments that make contracts inevitably
incomplete. A multi-dimensional view of property rights can help designers anticipate organizational features that
have potential for distorting the efficient use of resources, both within particular settings and over time. Centrally
produced constitutions that require each dimension of property rights be spelled out before a hybrid is launched
could help anticipate, if not avoid, tensions likely to affect organizational performance.
We have also drawn on the conflicting logics literature to help understand the way that managers (and owners)
manage and resolve goal tension. Unfortunately, from the perspective of the organizational designer, this literature
appears to be unconnected to the literature on organizational property rights and, further, makes no effort to
translate behavioral observations into normative implications. We have tried to connect these literatures. However,
the connection would be much easier if those who research conflicting logics made greater efforts to draw out the
normative implications of their findings and attempt to answer a fundamental question: do hybrids achieve superior,
comparable, or even adequate outcomes relative to unitary organizations to justify their greater complexity?
Do we have any advice to offer organizational designers? Yes – be wary of hybrid designs that fractionalize
property rights across the public and private sector. In view of the inherent problems, one would want to have
well-articulated reasons for such hybridization. Where these reasons do exist, recognize that managers will face
dissonance and discretion to address it. As the devil is in the property rights details, be prepared to set them out ex
ante with great specificity – inability to do so for either technical or political reasons should raise a red flag about
future dangers. The six dimensions of property rights we set out provide a starting point for getting the details right.
In terms of the three common forms of public-private hybrids we considered, MEs pose the least risk of
catastrophic failure – in competitive markets in developed economies they are likely to be less efficient and profitable
than private firms but more efficient than public organizations. Further, they are unlikely to fail outright because the
structure of their ownership can be relatively easily manipulated by government sales or purchases of stock. Overall,
relatively feasible design effort can often create MEs that can be good alternatives to public organizations and, in
some circumstances, to outright privatization.
Public-private partnerships pose a substantial risk of failure, either in terms of bankruptcy by the private partner
or politically expedient buyouts by government to negate opportunistic behavior in tolling or other aspects of
operation directly relevant to citizens. Although they can be designed to be effective, their complexity and long
time-horizons make doing so very difficult. As their political attractiveness often outpaces design capacity, they often
are bad alternatives to the more traditional contracting arrangements used by government organizations to create
infrastructure.
Government sponsored enterprises also pose a risk of catastrophic failure that may require bailouts if they have
strong vested interests or network centrality that prevent liquidation. These risks of catastrophic failure may or may
not be realized. However, they should be recognized and taken into account by organizational designers. Whether
ultimately good or bad in terms of efficiently promoting substantive public values, GSEs may ultimately be ugly in
terms of the political influence they create.
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Regulation & Governance (2016) 10, 161 –178 doi:10.1111/rego.12086

The challenges of fractionalized property rights in

1. Introduction: The rise of the public-private hybrid

2. Framing public-private hybrid performance

3. Straightforward . . . and not so straightforward . . . property right bundles

4. Property rights arrangements: Public-private hybrids versus unitary organizations

4.1. Ownership fragmentation

4.2. Clarity of allocation

4.3. Cost of alienation

4.4. Security from trespass

4.5. Credibility of persistence

5. Managerial autonomy, cognitive dissonance, and resolution

6.1. Mixed enterprises

6.2. Public-private partnerships

6.3. Government-sponsored enterprises: Fannie Mae, Freddie Mac, and others

7. Conclusion: Lessons for policy design

174 © 2015 John Wiley & Sons Australia, Ltd

© 2015 John Wiley & Sons Australia, Ltd 175

176 © 2015 John Wiley & Sons Australia, Ltd

© 2015 John Wiley & Sons Australia, Ltd 177

178 © 2015 John Wiley & Sons Australia, Ltd

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