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Cost Allocation in PPP Projects: An Analysis Based on the Theory of “Contracts as Reference Points”

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  • Yichen Peng
  • Jing Zhou
  • Qiang Xu
  • Xiaoling Wu

Abstract

In recent years, the demand for infrastructure has been largely driven by the economic development of many countries. PPP has proved to be an efficient way to draw private capital into public utility construction, where ownership allocation becomes one of the most important clauses to both the government and the private investor. In this paper, we establish mathematical models to analyze the equity allocation problem of PPP projects through a comparison of the models with and without the effects of the theory of “contracts as reference points.” We then derive some important conclusions from the optimal solution of the investment ratio.

Suggested Citation

  • Yichen Peng & Jing Zhou & Qiang Xu & Xiaoling Wu, 2014. "Cost Allocation in PPP Projects: An Analysis Based on the Theory of “Contracts as Reference Points”," Discrete Dynamics in Nature and Society, Hindawi, vol. 2014, pages 1-6, May.
    • Handle: RePEc:hin:jnddns:158765
    DOI: 10.1155/2014/158765
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    References listed on IDEAS

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    1. Crampes, Claude & Estache, Antonio, 1998. "Regulatory trade-offs in the design of concession contracts," Utilities Policy, Elsevier, vol. 7(1), pages 1-13, March.
    2. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1343-1372.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    4. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 1-48.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Crampes, Claude & Estache, Antonio, 1997. "Regulatory tradeoffs in designing concession contracts for infrastructure networks," Policy Research Working Paper Series 1854, The World Bank.
    7. Ernst Fehr & Oliver Hart & Christian Zehnder, 2011. "Contracts as Reference Points--Experimental Evidence," American Economic Review, American Economic Association, vol. 101(2), pages 493-525, April.
    8. Ernst Fehr & Oliver Hart & Christian Zehnder, 2008. "Contracts as reference points � experimental evidence," IEW - Working Papers 393, Institute for Empirical Research in Economics - University of Zurich.
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    Cited by:

    1. Sheng, Mingyue & Sreenivasan, Ajith Viswanath & Sharp, Basil & Wilson, Douglas & Ranjitkar, Prakash, 2020. "Economic analysis of dynamic inductive power transfer roadway charging system under public-private partnership–Evidence from New Zealand," Technological Forecasting and Social Change, Elsevier, vol. 154(C).

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