Contractual efficiency of PPP infrastructure projects: an incomplete contract model

DOI10.1155/2018/3631270MaRDI QIDQ1720792zbMATH OpenOpenAlexWikidataFDO

Authors Xianqiang Yang

Publication date 8 February 2019

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2018/3631270

Mathematics Subject Classification ID

Contract theory (moral hazard, adverse selection) (91B41)

Review text

Summary: This study analyses the contractual efficiency of public-private partnership (PPP) infrastructure projects, with a focus on two financial aspects: the nonrecourse principal and incompleteness of debt contracts. The nonrecourse principal releases the sponsoring companies from the debt contract when the special purpose vehicle (SPV) established by the sponsoring companies falls into default. Consequently, all obligations under the debt contract are limited to the liability of the SPV following its default. Because the debt contract is incomplete, a renegotiation of an additional loan between the bank and the SPV might occur to enable project continuation or liquidation, which in turn influences the SPV's ex ante strategies (moral hazard). Considering these two financial features of PPP infrastructure projects, this study develops an incomplete contract model to investigate how the renegotiation triggers ex ante moral hazard and ex post inefficient liquidation. We derive equilibrium strategies under service fees endogenously determined via bidding and examine the effect of equilibrium strategies on contractual efficiency. Finally, we propose an optimal combination of a performance guarantee, the government's termination right, and a service fee to improve the contractual efficiency of PPP infrastructure projects.

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Cites work

• A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence
• Default and Renegotiation: A Dynamic Model of Debt
• Evolutionary game analysis of the supervision behavior for public-private partnership projects with public participation

Cited in

(10)

• Concession period decision models for public infrastructure projects based on option games
• Optimizing price of credit default swaps for dynamic project system of public-private partnership
• Cost allocation in PPP projects: an analysis based on the theory of ``contracts as reference points
• Sustainable and optimal ``uniqueness contract in public-private partnership projects of transportation infrastructure
• How to design infrastructure contracts in a warming world: a critical appraisal of public-private partnerships
• Concept and prototype of a web tool for public-private project contracting based on a system dynamics model
• Research on BOT project company's stability and stockholder's behavior character
• Measuring the efficiency of highway maintenance contracting strategies: a bootstrapped non-parametric meta-frontier approach
• A theory of national development bank: long-term investment and the agency problem
• Contractual flexibility, firm effort, and subsidy design: a comparison of PPP project contracts

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