Pareto optimization of public-private partnership toll road contracts with government guarantees

Jinbo Song, Yunpeng Zhao, Lulu Jin and Yan Sun

Transportation Research Part A: Policy and Practice, 2018, vol. 117, issue C, 158-175

Abstract: Government guarantees are frequently used in public-private partnership (PPP) toll road projects to attract private sector partners. In this paper, we propose a multi-objective programming model for Pareto-optimal decision in which the toll, quantity demanded, private firm’s profit and social welfare are investigated, and compare the effectiveness of exclusivity guarantees and minimum demand guarantees in PPP contracts. Under certain assumptions, we find that for any government guarantee, the Pareto-optimal toll lies in between the toll set by private firms and socially optimal toll; in addition, the Pareto-optimal toll is higher and monopoly power is stronger under minimum demand guarantee if the relative negotiating power of private firms is sufficiently high. Both the private firm’s profit and social welfare depend on relative negotiating power, buyback price, marginal social cost and minimum quantity demanded. In particular, if the minimum quantity demanded and the buyback price are sufficiently high, the government will tend to provide exclusivity guarantee but not minimum demand guarantee. A policy implication of this result is that it is not always the best choice for the government to provide a minimum demand guarantee to private firms.

Keywords: Public-private partnership; Toll roads; Government guarantee; Pareto optimization; Multi-objective programming (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0965856418301563
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transa:v:117:y:2018:i:c:p:158-175

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.tra.2018.08.019

Access Statistics for this article

Transportation Research Part A: Policy and Practice is currently edited by John (J.M.) Rose

More articles in Transportation Research Part A: Policy and Practice from Elsevier
Bibliographic data for series maintained by Catherine Liu ().