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The effects of concession period structures on BOT road contracts

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  • Zhang, Yiwen
  • Feng, Zhuo
  • Zhang, Shuibo

Abstract

Under the build-operate-transfer (BOT) approach, the private firm builds and operates a road within the concession period and transfers the project at no cost to the government at the end of the concession period. Based on whether the construction period and the private operation period are defined together or separately, there are two concession period structures: single-period concession structure (SPCS) and two-period concession structure (TPCS). This paper simultaneously compares socially optimal toll prices in both private and public operation periods, road quality, and concession period under SPCS and TPCS, respectively. We find that if the marginal social welfare with respect to toll price in private operation period is sufficiently more responsive than to road quality, then the optimal road capacity and toll prices under SPCS are higher than those under TPCS. Otherwise if marginal social welfare in public operation period is sufficiently more responsive to road quality, then the optimal toll prices under SPCS are lower while the optimal road quality under SPCS is higher. We also find that the optimal concession periods are independent of concession period structures. This paper has made three extensions to further investigate the effects of concession period structures (1) when the toll price is determined by the private firm; (2) when renegotiation takes place; and (3) when government support policies are present. Based on our model results, this paper derives several policy implications regarding BOT road contract design under different concession period structures.

Suggested Citation

  • Zhang, Yiwen & Feng, Zhuo & Zhang, Shuibo, 2018. "The effects of concession period structures on BOT road contracts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 107(C), pages 106-125.
    • Handle: RePEc:eee:transa:v:107:y:2018:i:c:p:106-125
    DOI: 10.1016/j.tra.2017.11.018
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    References listed on IDEAS

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    Cited by:

    1. Song, Jinbo & Zhao, Yunpeng & Jin, Lulu & Sun, Yan, 2018. "Pareto optimization of public-private partnership toll road contracts with government guarantees," Transportation Research Part A: Policy and Practice, Elsevier, vol. 117(C), pages 158-175.
    2. Zhao, Yunpeng & Song, Jinbo & Feng, Zhuo & Jin, Lulu, 2023. "Incentive contracts with demand guarantee in BOT toll road projects," Research in Transportation Economics, Elsevier, vol. 98(C).
    3. Wang, Wei (Walker) & Jin, Xi & Tan, Zhijia & Sun, Huijun & Wu, Jianjun, 2022. "Modeling the effects of government subsidy and regulation on BOT transport project contract design within contractible service quality," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    4. Mahavadi Dhanshyam & Samir K. Srivastava, 2021. "Governance structures for public infrastructure projects: Public–private management regimes, contractual forms and innovation," Construction Management and Economics, Taylor & Francis Journals, vol. 39(8), pages 652-668, August.
    5. Kim, Kangsoo, 2020. "Robust Contract Conditions Under the Newly Introduced BTO-rs Scheme: Application to an Urban Railway Project," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(4), pages 117-138.
    6. Zhang, Yiwen & Feng, Zhuo & Zhang, Shuibo & Song, Jinbo, 2018. "The effects of service level on BOT transport project contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 184-206.
    7. Shi, Shasha & An, Qingxian & Chen, Ke, 2020. "Optimal choice of capacity, toll, and subsidy for build-operate-transfer roads with a paid minimum traffic guarantee," Transportation Research Part A: Policy and Practice, Elsevier, vol. 139(C), pages 228-254.
    8. Shi, Shasha & Yin, Yafeng & An, Qingxian & Chen, Ke, 2021. "Optimal build-operate-transfer road contracts under information asymmetry and uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 152(C), pages 65-86.
    9. Feng, Zhuo & Song, Jinbo & Yang, Xiaoxing & Guo, Ran, 2023. "Contractual flexibility, firm effort, and subsidy design: A comparison of PPP project contracts," European Journal of Operational Research, Elsevier, vol. 307(1), pages 484-496.
    10. Feng, Zhuo & Zhang, Yiwen & Zhang, Shuibo & Song, Jinbo, 2018. "Contracting and renegotiating with a loss-averse private firm in BOT road projects," Transportation Research Part B: Methodological, Elsevier, vol. 112(C), pages 40-72.

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