Disentangling contract and law: Legal specificity and contractual governance in public–private partnerships

Abstract Research Summary This study examines how legal design shapes contractual governance in public–private partnership (PPP). We argue that PPP‐specific laws do not simply strengthen institutional safeguards; by varying in detail, they also alter the flexibility available for project‐level contracting. Highly specific laws better constrain governmental discretion but raise adaptation costs, making user‐pay contracts, where private partners bear demand risk and rely on market‐responsive adjustment, less attractive. Less specific laws preserve greater contractual discretion and are therefore associated with more user‐pay arrangements. We also show that countries with weaker political constraints adopt more specific PPP laws, suggesting that legal design compensates for weaker institutional checks. Using 3986 PPP projects in 53 countries from 1997 to 2021, we find support for these claims. Managerial Summary Governments often pass public–private partnership (PPP) laws to attract private capital into infrastructure projects. This study shows that what matters is not only whether such laws exist, but how detailed they are. Highly specific laws can make government commitments more credible, especially where political checks and balances are weak, but they can also limit the flexibility private partners need when revenues depend on users, such as tolls or fees. Across 3986 PPP projects in 53 countries, we find that more detailed laws are linked to fewer user‐pay projects, while less detailed laws are linked to greater use of user‐pay arrangements. Our analysis suggests that legal certainty and flexibility must be balanced: specific legal regimes can protect private investment while narrowing the range of viable investment models.