Modeling and Validating Public–Private Partnerships in Disaster Management

Peiqiu Guan (), Jing Zhang (), Vineet M. Payyappalli () and Jun Zhuang ()
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Peiqiu Guan: Department of Industrial and Systems Engineering, University at Buffalo, The State University of New York, Buffalo, New York 14260
Jing Zhang: Department of Industrial and Systems Engineering, University at Buffalo, The State University of New York, Buffalo, New York 14260
Vineet M. Payyappalli: Department of Industrial and Systems Engineering, University at Buffalo, The State University of New York, Buffalo, New York 14260
Jun Zhuang: Department of Industrial and Systems Engineering, University at Buffalo, The State University of New York, Buffalo, New York 14260

Decision Analysis, 2018, vol. 15, issue 2, 55-71

Abstract: This paper applies game theory and expected utility theory models to study the optimal public–private partnerships (PPPs) in disaster preparedness considering the uncertain consequences of the disasters, the investment costs, and the private sector’s potential risk attitudes, including risk-seeking behavior, risk aversion, and risk neutrality. We study the private sector’s best response and the subgame perfect Nash equilibrium solutions. Our results show that the public sector provides the least amount of subsidy to the risk-averse private sector and the highest amount of subsidy to the risk-seeking private sector. On the contrary, the risk-averse private sector invests the most, and the risk-seeking private sector invests the least. Finally, we validate the model results using a two-stage experiment with 91 participants. This paper provides insights into how to construct win–win PPPs in disaster preparedness with considerations of the private sector’s risk behavior.

Keywords: public–private partnerships (PPPs); subsidy; investment; sequential games; risk preferences; model validation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:15:y:2018:i:2:p:55-71

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