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Interpreting risk allocation mechanism in public-private partnership projects: an empirical study in a transaction cost economics perspective

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  • Xiao-Hua Jin
  • Hemanta Doloi

Abstract

Risk allocation in public-private partnership (PPP) projects is currently claimed as capability driven. While lacking theoretical support, the claim is often 'violated' by current industrial practice. There is thus a need for formal mechanisms to interpret why a particular risk is retained by government in one project while transferred to private partners in another. From the viewpoint of transaction cost economics (TCE), integrated with the resource-based view (RBV) of organizational capabilities, this paper proposed a theoretical framework for understanding risk allocation practice in PPP projects. The theories underlying the major constructs and their links were articulated. Data gathered from an industry-wide survey were used to test the framework. The results of multiple linear regression (MLR) generally support the proposed framework. It has been found that partners' risk management routine, mechanism, commitment, cooperation history, and uncertainties associated with project risk management could serve to determine the risk allocation strategies adopted in a PPP project. This theoretical framework thus provides both government and private agencies with a logical and complete understanding of the process of selecting the allocation strategy for a particular risk in PPP projects. Moreover, it could be utilized to steer the risk allocation strategy by controlling certain critical determinants identified in the study. Study limitations and future research directions have also been set out.

Suggested Citation

  • Xiao-Hua Jin & Hemanta Doloi, 2008. "Interpreting risk allocation mechanism in public-private partnership projects: an empirical study in a transaction cost economics perspective," Construction Management and Economics, Taylor & Francis Journals, vol. 26(7), pages 707-721.
    • Handle: RePEc:taf:conmgt:v:26:y:2008:i:7:p:707-721
    DOI: 10.1080/01446190801998682
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    References listed on IDEAS

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    1. P. K. Rao, 2003. "The Economics of Transaction Costs," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-59768-6, October.
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    Cited by:

    1. Ranjith Appuhami & Sujatha Perera & Hector Perera, 2011. "Management Controls in Public–Private Partnerships: An Analytical Framework," Australian Accounting Review, CPA Australia, vol. 21(1), pages 64-79, March.
    2. Nizkorodov, Evgenia, 2021. "Evaluating risk allocation and project impacts of sustainability-oriented water public–private partnerships in Southern California: A comparative case analysis," World Development, Elsevier, vol. 140(C).
    3. Shrestha, Asheem & Chan, Toong-Khuan & Aibinu, Ajibade A. & Chen, Chuan, 2017. "Efficient risk transfer in PPP wastewater treatment projects," Utilities Policy, Elsevier, vol. 48(C), pages 132-140.
    4. Ling Jia & Queena K. Qian & Frits Meijer & Henk Visscher, 2020. "Stakeholders’ Risk Perception: A Perspective for Proactive Risk Management in Residential Building Energy Retrofits in China," Sustainability, MDPI, vol. 12(7), pages 1-25, April.
    5. Guoxian Cao & Chaoyang Guo & Hezhong Li, 2022. "Risk Analysis of Public–Private Partnership Waste-to-Energy Incineration Projects from the Perspective of Rural Revitalization," Sustainability, MDPI, vol. 14(13), pages 1-19, July.
    6. Kopańska, Agnieszka & Osinski, Roman & Korbus, Bartosz, 2024. "Private entities motivations to participate in public-private partnerships," Socio-Economic Planning Sciences, Elsevier, vol. 92(C).
    7. Fleta-Asín, Jorge & Muñoz, Fernando, 2020. "How does risk transference to private partner impact on public-private partnerships’ success? Empirical evidence from developing economies," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).
    8. Xiao, Zengqi & Lam, Jasmine Siu Lee, 2020. "The impact of institutional conditions on willingness to take contractual risk in port public-private partnerships of developing countries," Transportation Research Part A: Policy and Practice, Elsevier, vol. 133(C), pages 12-26.
    9. Gabriel Castelblanco & Jose Guevara & Harrison Mesa & Diego Flores, 2020. "Risk Allocation in Unsolicited and Solicited Road Public-Private Partnerships: Sustainability and Management Implications," Sustainability, MDPI, vol. 12(11), pages 1-28, June.
    10. Song, Jinbo & Song, Danrong & Zhang, Xueqing & Sun, Yan, 2013. "Risk identification for PPP waste-to-energy incineration projects in China," Energy Policy, Elsevier, vol. 61(C), pages 953-962.
    11. Jamal Ouenniche & Aristotelis Boukouras & Mohammad Rajabi, 2016. "An Ordinal Game Theory Approach to the Analysis and Selection of Partners in Public–Private Partnership Projects," Journal of Optimization Theory and Applications, Springer, vol. 169(1), pages 314-343, April.
    12. Xiao, Zengqi & Lam, Jasmine Siu Lee, 2019. "Willingness to take contractual risk in port public-private partnerships under economic volatility: The role of institutional environment in emerging economies," Transport Policy, Elsevier, vol. 81(C), pages 106-116.
    13. Yilin Yin & Qing Lin & Wanyi Xiao & Hang Yin, 2020. "Impacts of Risk Allocation on Contractors’ Opportunistic Behavior: The Moderating Effect of Trust and Control," Sustainability, MDPI, vol. 12(22), pages 1-16, November.
    14. Lei Yang & Longji Hu & Yifan Li, 2024. "Institutional Environment, Institutional Arrangements, and Risk Identification and Allocation in Public–Private Partnerships: A Multilevel Model Analysis Based on Data from 31 Provinces in China," Sustainability, MDPI, vol. 16(15), pages 1-28, August.
    15. Libiao Bai & Yi Li & Qiang Du & Yadan Xu, 2017. "A Fuzzy Comprehensive Evaluation Model for Sustainability Risk Evaluation of PPP Projects," Sustainability, MDPI, vol. 9(10), pages 1-22, October.

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