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Incentive game of investor speculation in PPP highway projects based on the government minimum revenue guarantee

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  • Wang, Yinglin
  • Gao, Huaizhu Oliver
  • Liu, Jicai

Abstract

Mechanisms for risk sharing are critical in infrastructure project financing. In public-private partnerships (PPP) for highway projects, provision of guarantees by the government to the investors is an important risk-sharing scheme. Because the government does not have the same information that private investors have, information asymmetry leads to speculation. In this paper, investors grab minimum revenue guarantee by deliberately reducing in earnings is identified as a moral hazard. To solve this problem, a game theory model for studying mechanisms that encourage/incentivize investors to adopt a positive attitude toward cooperation with the government is established. In particular, we design incentive mechanisms that engage private investors based on their profitability outlook. The results show that blindly increasing the amount of a reward or a penalty is not an effective way to guide an investor’s behavior. Adopting flexible incentive mechanisms during different stages of a project proves effective in influencing investors’ willingness to cooperate with the government as well as in maximizing the benefits they realize from the project.

Suggested Citation

  • Wang, Yinglin & Gao, Huaizhu Oliver & Liu, Jicai, 2019. "Incentive game of investor speculation in PPP highway projects based on the government minimum revenue guarantee," Transportation Research Part A: Policy and Practice, Elsevier, vol. 125(C), pages 20-34.
    • Handle: RePEc:eee:transa:v:125:y:2019:i:c:p:20-34
    DOI: 10.1016/j.tra.2019.05.006
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    References listed on IDEAS

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    Cited by:

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    5. Xinxin Liu & Xiaosheng Wang & Haiying Guo & Xiaojie An, 2021. "Benefit Allocation in Shared Water-Saving Management Contract Projects Based on Modified Expected Shapley Value," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 35(1), pages 39-62, January.
    6. Athena Roumboutsos & Alenka Temeljotov-Salaj & Iosif Karousos, 2020. "Indicators for Sustainable Demand Risk Allocation in Transport Infrastructure Projects," Sustainability, MDPI, vol. 12(22), pages 1-23, November.
    7. Yinglin Wang & Jingyi Chen & Jicai Liu & Chuhan Zhou, 2021. "Investors’ exit timing of PPP projects based on escalation of commitment," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-23, September.
    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. Hao Fu & Yue Liu & Pengfei Cheng & Sijie Cheng, 2022. "Evolutionary Game Analysis on Innovation Behavior of Digital Financial Enterprises under the Dynamic Reward and Punishment Mechanism of Government," Sustainability, MDPI, vol. 14(19), pages 1-18, October.
    10. Lu, Zhaoyang & Meng, Qiang, 2023. "Effects of asymmetric investment cost information on revenue-compensated build-operate-transfer highway contracts," Transportation Research Part B: Methodological, Elsevier, vol. 172(C), pages 71-92.
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