IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v8y2016i8p730-d75069.html
   My bibliography  Save this article

Research on the Participant Behavior Selections of the Energy Performance Contracting Project Based on the Robustness of the Shared Savings Contract

Author

Listed:
  • Guangyuan Xing

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China)

  • Dong Qian

    (College of Economics & Management, Northwest A & F University, Yangling 712100, China)

  • Ju’e Guo

    (School of Management, Xi’an Jiaotong University, Xi’an 710049, China)

Abstract

The profits of the ESCO (Energy Services Company) and EU (Energy Using Organization) in the EPCP (energy performance contracting project) rely on the signing of the shared savings contract and the successful operation of the project, and the probability of the project’s success is decided by the complementary efforts of the ESCO and EU. However, the effort selection of the two sides face the bidirectional moral hazard caused by asymmetric information. Based on the robustness of shared savings contract, this paper establishes a bidirectional moral hazard model under asymmetric information to analyze the complementary efforts selection of the ESCO and EU with the given revenue sharing rules, and analyzes the differences of the complementary efforts under symmetric and asymmetric information conditions and the impacts of those efforts on the shared savings contract’s robustness by using a numerial simulation. The results show that compared with information symmetry, the bidirectional moral hazard will erode the project’s value under information asymmetry, the project’s success probability and the level of the parties’ efforts will decrease, which reveals the negative impact of asymmetric information on the robustness of the shared savings contract, and the significance of eliminating information asymmetry effectively as well as incentivizing the parties to increase the degree of complementary efforts to enhance the probability of the project’s success. Finally, policy recommendations regarding the introduction of incomplete contracts, promoting guaranteed savings contracts, and improving energy savings audits for the enhancement of the robustness of the shared savings contract are provided. This research will be helpful to improve the theoretical research on the contract’s robustness, perfect the design of the energy service contract, and formulate the related support policies.

Suggested Citation

  • Guangyuan Xing & Dong Qian & Ju’e Guo, 2016. "Research on the Participant Behavior Selections of the Energy Performance Contracting Project Based on the Robustness of the Shared Savings Contract," Sustainability, MDPI, vol. 8(8), pages 1-13, July.
    • Handle: RePEc:gam:jsusta:v:8:y:2016:i:8:p:730-:d:75069
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/8/8/730/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/8/8/730/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Houben, Eike, 2002. "Venture capital, double-sided adverse selection, and double-sided moral hazard," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 556, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Kostka, Genia & Shin, Kyoung, 2013. "Energy conservation through energy service companies: Empirical analysis from China," Energy Policy, Elsevier, vol. 52(C), pages 748-759.
    5. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, European Finance Association, vol. 8(1), pages 75-108.
    6. Ansar, Jasmin & Sparks, Roger, 2009. "The experience curve, option value, and the energy paradox," Energy Policy, Elsevier, vol. 37(3), pages 1012-1020, March.
    7. Vine, Edward, 2005. "An international survey of the energy service company (ESCO) industry," Energy Policy, Elsevier, vol. 33(5), pages 691-704, March.
    8. Qian, Dong & Guo, Ju’e, 2014. "Research on the energy-saving and revenue sharing strategy of ESCOs under the uncertainty of the value of Energy Performance Contracting Projects," Energy Policy, Elsevier, vol. 73(C), pages 710-721.
    9. Li, Yan & Qiu, Yueming & Wang, Yi David, 2014. "Explaining the contract terms of energy performance contracting in China: The importance of effective financing," Energy Economics, Elsevier, vol. 45(C), pages 401-411.
    10. Jean-Etienne de Bettignies, 2008. "Financing the Entrepreneurial Venture," Management Science, INFORMS, vol. 54(1), pages 151-166, January.
    11. Reid, Joseph D, Jr, 1977. "The Theory of Share Tenancy Revisited-Again," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 403-407, April.
    12. Bannai, Masaaki & Tomita, Yasushi & Ishida, Yasushi & Miyazaki, Takahiko & Akisawa, Atsushi & Kashiwagi, Takao, 2007. "Risk hedging against the fuel price fluctuation in energy service business," Energy, Elsevier, vol. 32(11), pages 2051-2060.
    13. Bertoldi, Paolo & Rezessy, Silvia & Vine, Edward, 2006. "Energy service companies in European countries: Current status and a strategy to foster their development," Energy Policy, Elsevier, vol. 34(14), pages 1818-1832, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wenjie Zhang & Hongping Yuan, 2019. "Promoting Energy Performance Contracting for Achieving Urban Sustainability: What is the Research Trend?," Energies, MDPI, vol. 12(8), pages 1-18, April.
    2. Xiaoying Li & Qinghua Zhu, 2020. "Contract Design for Enhancing Green Food Material Production Effort with Asymmetric Supply Cost Information," Sustainability, MDPI, vol. 12(5), pages 1-18, March.
    3. Wenjie Zhang & Hongping Yuan, 2019. "A Bibliometric Analysis of Energy Performance Contracting Research from 2008 to 2018," Sustainability, MDPI, vol. 11(13), pages 1-23, June.
    4. Qingfeng Meng & Zhen Li & Jianguo Du & Huimin Liu & Xiang Ding, 2019. "Negotiation for Time Optimization in Construction Projects with Competitive and Social Welfare Preferences," Complexity, Hindawi, vol. 2019, pages 1-13, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wenjie Zhang & Hongping Yuan, 2019. "A Bibliometric Analysis of Energy Performance Contracting Research from 2008 to 2018," Sustainability, MDPI, vol. 11(13), pages 1-23, June.
    2. Wenjie Zhang & Hongping Yuan, 2019. "Promoting Energy Performance Contracting for Achieving Urban Sustainability: What is the Research Trend?," Energies, MDPI, vol. 12(8), pages 1-18, April.
    3. Qian, Dong & Guo, Ju’e, 2014. "Research on the energy-saving and revenue sharing strategy of ESCOs under the uncertainty of the value of Energy Performance Contracting Projects," Energy Policy, Elsevier, vol. 73(C), pages 710-721.
    4. Pei-Chien Lin & Ming-Feng Hung, 2016. "The Effect of Energy Service Companies on Energy Use in Selected Developing Countries: A Synthetic Control Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 335-348.
    5. Qin, Quande & Liang, Fuqi & Li, Li & Wei, Yi-Ming, 2017. "Selection of energy performance contracting business models: A behavioral decision-making approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 422-433.
    6. Zhou, Yuanrong & Evans, Meredydd & Yu, Sha & Sun, Xiaoliang & Wang, Juemin, 2020. "Linkages between policy and business innovation in the development of China's energy performance contracting market," Energy Policy, Elsevier, vol. 140(C).
    7. Lu, Zhijian & Shao, Shuai, 2016. "Impacts of government subsidies on pricing and performance level choice in Energy Performance Contracting: A two-step optimal decision model," Applied Energy, Elsevier, vol. 184(C), pages 1176-1183.
    8. Töppel, Jannick & Tränkler, Timm, 2019. "Modeling energy efficiency insurances and energy performance contracts for a quantitative comparison of risk mitigation potential," Energy Economics, Elsevier, vol. 80(C), pages 842-859.
    9. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).
    10. Hyein Yi & Sanghyo Lee & Jaejun Kim, 2017. "An ESCO Business Model Using CER for Buildings’ Energy Retrofit," Sustainability, MDPI, vol. 9(4), pages 1-21, April.
    11. Okay, Esin & Okay, Nesrin & Konukman, Alp Er S. & Akman, Ugur, 2008. "Views on Turkey's impending ESCO market: Is it promising?," Energy Policy, Elsevier, vol. 36(6), pages 1821-1825, June.
    12. Okay, Nesrin & Akman, Ugur, 2010. "Analysis of ESCO activities using country indicators," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(9), pages 2760-2771, December.
    13. Akman, Ugur & Okay, Esin & Okay, Nesrin, 2013. "Current snapshot of the Turkish ESCO market," Energy Policy, Elsevier, vol. 60(C), pages 106-115.
    14. Liu, Guiwen & Zheng, Saina & Xu, Pengpeng & Zhuang, Taozhi, 2018. "An ANP-SWOT approach for ESCOs industry strategies in Chinese building sectors," Renewable and Sustainable Energy Reviews, Elsevier, vol. 93(C), pages 90-99.
    15. Stuart, Elizabeth & Larsen, Peter H. & Goldman, Charles A. & Gilligan, Donald, 2014. "A method to estimate the size and remaining market potential of the U.S. ESCO (energy service company) industry," Energy, Elsevier, vol. 77(C), pages 362-371.
    16. Hongquan Ruan & Xin Gao & Chaoxuan Mao, 2018. "Empirical Study on Annual Energy-Saving Performance of Energy Performance Contracting in China," Sustainability, MDPI, vol. 10(5), pages 1-25, May.
    17. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    18. Lukas, Elmar & Mölls, Sascha & Welling, Andreas, 2016. "Venture capital, staged financing and optimal funding policies under uncertainty," European Journal of Operational Research, Elsevier, vol. 250(1), pages 305-313.
    19. Lin, Tyrone T. & Huang, Shio-Ling, 2011. "Application of the modified Tobin's q to an uncertain energy-saving project with the real options concept," Energy Policy, Elsevier, vol. 39(1), pages 408-420, January.
    20. Nolden, Colin & Sorrell, Steve & Polzin, Friedemann, 2016. "Catalysing the energy service market: The role of intermediaries," Energy Policy, Elsevier, vol. 98(C), pages 420-430.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:8:y:2016:i:8:p:730-:d:75069. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.