Renegotiation Strategy of Public-Private Partnership Projects with Asymmetric Information—An Evolutionary Game Approach

Huige Xing, Yuelin Li and Hongyang Li
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Huige Xing: College of Architecture & Environment, Sichuan University, Chengdu 610065, China
Yuelin Li: College of Architecture & Environment, Sichuan University, Chengdu 610065, China
Hongyang Li: School of Civil Engineering and Transportation, South China University of Technology, Guangzhou 510641, China

Sustainability, 2020, vol. 12, issue 7, 1-23

Abstract: The characteristics of public-private partnerships (PPPs) determine that renegotiation is inevitable. Moreover, the strategic choice of the government and investors during renegotiation is critical for the project to continue. Previous studies suggested that the government’s decision-making mistakes and investors’ opportunism during renegotiation are the significant reasons for project failures. However, most of the research focused on the behavioral decision of one party while few have applied evolutionary game theory to study the mutual influence of the strategy choices of both parties involved. To address this issue, this paper established an evolutionary game model of the government’s and investors’ renegotiation strategies, and analyzed the evolutionary stability strategy and related parameters. The results showed that the government’s selection of strategy is based on two values, i.e., the buyback cost and the difference between subsidy cost and the expected social benefit of the project in the future. The higher the expected social benefit, the higher the probability that the government chooses to maintain the project. Besides, investors’ strategy is mainly determined by speculative net benefit and financial status. The probability of investors’ opportunism is positively correlated with the speculative net benefit and negatively correlated with the project benefit of non-opportunism. In addition, cooperative benefits created by reasonable participation in the project will effectively restrict opportunistic behaviors, and the interactive behavior of both game players will move toward the optimal portfolio strategy. This study can provide relevant management suggestions for avoiding excessive subsidies and restraining opportunistic behaviors, which are conducive to the sustainable development of PPP projects.

Keywords: public-private partnerships (PPPs); renegotiation; evolutionary game; asymmetric information; strategy choice (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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