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Modeling ceiling price for build-operate-transfer road projects in developing countries

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  • Hoang-Tung, Nguyen
  • Viet Hung, Do
  • Kato, Hironori
  • Binh, Phan Le

Abstract

This study examines a ceiling price for build-operate-transfer (BOT) road projects in the context of developing countries. Although ceiling price is one of the most significant elements in BOT policy given that it has a focal-point effect, it has been rarely examined in prior studies. Subsequently, the study formulates a model of ceiling price under the framework of simple two-route network by integrating the nature of travelers' mode choice with the interaction between stakeholders through the Nash equilibrium as well as a risk-mitigation approach in the ceiling price decision-making process. The proposed model has unique characteristics that allow the government to protect social welfare while still providing opportunities for private investors to achieve their optimal toll rates. It also provides room to the government for negotiating with private investors while taking into account travelers' benefits and risk identification. The model is applied to a case study in Hanoi, Vietnam; and successfully showed its applicability with empirical evidences. The proposed method highlights planning aspects rather than road users’ aspect, which is expected to contribute to a project preparation stage in BOT projects.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:ecotra:v:28:y:2021:i:c:s2212012221000393
    DOI: 10.1016/j.ecotra.2021.100235
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