Optimal concession contracts for landlord port authorities under incomplete information

This paper investigates optimal concession contracts of the port authority when terminal operators have private information about their own operation costs. A two-stage game is constructed to characterize the interactions between the port authority and one terminal operator, and the port authority can select among the fixed-fee, the unit-fee and the two-part tariff contracts. We derive the pooling and the separating equilibria, and find that the separating equilibria are always preferred. In addition, incomplete information is at least as important as the minimum throughput requirement in affecting optimal contract types of the port authority. If the operator's marginal service costs are low (high), the port authority will face expected efficiency losses (gains) under incomplete information. However, the throughput requirement can mitigate (enhance) the expected efficiency losses (gains) under specific conditions. Moreover, requiring throughput may also lessen output distortions and information rents. Our findings provide insights and practical policy implications to port authorities and governments.