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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.

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  • 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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    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. 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. Auriol, Emmanuelle & Picard, Pierre M., 2013. "A theory of BOT concession contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 187-209.
    5. Song, Jinbo & Sun, Yan & Jin, Lulu, 2017. "PESTEL analysis of the development of the waste-to-energy incineration industry in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 276-289.
    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 & Tuo, Yuhui & Pan, Meixu & Yin, Yafeng & Chen, Yue & Zhou, Xiongwei & Chen, Ke, 2024. "Signaling contracts design for Build–Operate–Transfer roads under asymmetric traffic demand information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 183(C).
    8. Jin, Hongyu & Liu, Shijing & Sun, Jide & Liu, Chunlu, 2021. "Determining concession periods and minimum revenue guarantees in public-private-partnership agreements," European Journal of Operational Research, Elsevier, vol. 291(2), pages 512-524.
    9. 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.
    10. 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.
    11. Yin Germaschewski, 2016. "Getting help from abroad: The macroeconomics of foreign direct investment in infrastructure in low‐income countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(4), pages 1502-1535, November.
    12. 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.
    13. Wang, Fan & Xiong, Minghua & Niu, Baozhuang & Zhuo, Xiaopo, 2018. "Impact of government subsidy on BOT contract design: Price, demand, and concession period," Transportation Research Part B: Methodological, Elsevier, vol. 110(C), pages 137-159.
    14. 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.
    15. 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.
    16. 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.
    17. Meng, Qiang & Lu, Zhaoyang, 2017. "Quantitative analyses of highway franchising under build-operate-transfer scheme: Critical review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 102(C), pages 105-123.
    18. Alaa Soliman & Mohammad Aliu Momoh & Ibrahim L. Awad, 2017. "Infrastructure Guarantees: Making It Simple," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 178-202.
    19. Bontems, Philippe & Calmette, Marie-Françoise & Martimort, David, 2025. "Highway to Sell," TSE Working Papers 25-1652, Toulouse School of Economics (TSE).
    20. 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.
    21. Hoang-Tung, Nguyen & Viet Hung, Do & Kato, Hironori & Binh, Phan Le, 2021. "Modeling ceiling price for build-operate-transfer road projects in developing countries," Economics of Transportation, Elsevier, vol. 28(C).
    22. 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, vol. 8(12), pages 1-13, December.
    23. Guangbin Wang & Yingxia Xue & Mirosław Jan Skibniewski & Jiule Song & Hao Lu, 2018. "Analysis of Private Investors Conduct Strategies by Governments Supervising Public-Private Partnership Projects in the New Media Era," Sustainability, MDPI, vol. 10(12), pages 1-26, December.
    24. 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.
    25. Feng, Zhuo & Gao, Ying & Song, Jinbo & He, Qiaochu, 2025. "An analysis of information disclosure in build–operate–transfer road projects," European Journal of Operational Research, Elsevier, vol. 322(1), pages 292-306.

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