The Co-Operation between a Private and a Public Company from the Perspective of Desirable Risk Allocation
Science Journal of Business and Management
Volume 3, Issue 1-1, February 2015, Pages: 53-58
Received: Nov. 19, 2014; Accepted: Dec. 19, 2014; Published: Dec. 31, 2014
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Authors
Katalin Fülöp, Department of Economics, Faculty of Public Administration, National University of Public Service, Budapest, Hungary
Tibor Tatay, Department of Economic Analysis, Kautz Gyula Economics Faculty, Széchenyi István University, Győr, Hungary
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Abstract
Implicit and explicit risks implied in contracts are allocated optimally if the risk-taker is always the party who can manage risk at the lowest cost. This principle shall apply even if one of the parties work in the public sector, and the other in the private sector. As risk-attitude of contacting partners is of vital importance in risk-sharing, this paper reviews the key factors influencing risk attitude of governmental organizations and their leaders, government officials elected or appointed for a cycle, and business organizations and their managers. Factors resulting in non-optimized risk allocation are discussed in detail, for example, public sector bureaucrats elected for a cycle focus on outputs of great public interest and tend to discount targets to be realized after the election cycle, and therefore projects more risk appetite than previously assumed. In business organizations principal-agent relationship and lack of entrepreneurial orientation are key factors, whose significance increase in proportion to the size of business and make companies more risk-averse. Short-term contracts, partnership of small-scale businesses, or if there is too much at stake (e.g. a large value bids) for the scale of a company give less space for such distorting factors, and reduce the possibility of risk allocation detrimental to the public sector.
Keywords
Risk Attitude, Risk Allocation, Public-Private Co-Operation
To cite this article
Katalin Fülöp, Tibor Tatay, The Co-Operation between a Private and a Public Company from the Perspective of Desirable Risk Allocation, Science Journal of Business and Management. Special Issue: The Role of Knowledge and Management’s Tasks in the Companies. Vol. 3, No. 1-1, 2015, pp. 53-58. doi: 10.11648/j.sjbm.s.2015030101.19
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