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BOT projects: Incentives and efficiency

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  • Qiu, Larry D.
  • Wang, Susheng

Abstract

In recent years, governments have been increasingly adopting Build-Operate-Transfer (BOT) contracts for large infrastructure projects. However, BOT contracts have received little attention from economists. The apparent agency problem in BOT projects has never been analyzed. In this paper, we develop a model to examine the incentives, efficiency and regulation in BOT contracts. We show that a BOT contract with a price regulation during the concession period and a license extension after the concession period is capable of achieving full efficiency. Both license extension and price control are observed in many real-world BOT projects. We also investigate the efficiency in such contracts by considering other factors, including time consistency, price ceiling, foreign ownership, and the lack of price regulation.

Suggested Citation

  • Qiu, Larry D. & Wang, Susheng, 2011. "BOT projects: Incentives and efficiency," Journal of Development Economics, Elsevier, vol. 94(1), pages 127-138, January.
  • Handle: RePEc:eee:deveco:v:94:y:2011:i:1:p:127-138
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying, 2015. "Modeling the impact of government guarantees on toll charge, road quality and capacity for Build-Operate-Transfer (BOT) road projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 54-67.
    2. Auriol, Emmanuelle & Picard, Pierre M., 2013. "A theory of BOT concession contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 187-209.
    3. repec:eee:rensus:v:80:y:2017:i:c:p:276-289 is not listed on IDEAS
    4. repec:eee:transa:v:107:y:2018:i:c:p:106-125 is not listed on IDEAS
    5. Lih-Ren Liu & Yuh-Ming Lee, 2016. "Remedial Measures for Erroneous Environmental Policies: Assessing Infrastructure Projects of Waste-to-Energy Incineration in Taiwan with a Case Study of the Taitung Incinerator," Sustainability, MDPI, Open Access Journal, vol. 8(12), pages 1-13, December.
    6. Niu, Baozhuang & Zhang, Jie, 2013. "Price, capacity and concession period decisions of Pareto-efficient BOT contracts with demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 53(C), pages 1-14.
    7. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying & Zhang, Shuai-Jun, 2016. "Subsidizing and pricing private toll roads with noncontractible service quality: A relational contract approach," Transportation Research Part B: Methodological, Elsevier, vol. 91(C), pages 466-491.
    8. Li, Shuai & Cai, Hubo, 2017. "Government incentive impacts on private investment behaviors under demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 115-129.
    9. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying, 2014. "On oil investment and production: A comparison of production sharing contracts and buyback contracts," Energy Economics, Elsevier, vol. 42(C), pages 395-402.
    10. repec:eee:transb:v:102:y:2017:i:c:p:105-123 is not listed on IDEAS

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