Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach

Julio Cezar Russo (), Marco Antonio Guimarães Dias, André Barreira da Silva Rocha () and Fernando Luiz Cyrino Oliveira
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Julio Cezar Russo: Federal Rural University of Rio de Janeiro - DPCE/UFRRJ
Marco Antonio Guimarães Dias: Pontifical Catholic University of Rio de Janeiro
Fernando Luiz Cyrino Oliveira: Pontifical Catholic University of Rio de Janeiro

Group Decision and Negotiation, 2018, vol. 27, issue 6, No 4, 949-979

Abstract: Abstract Game theory is an important analytical tool for measuring problems caused by behaviors that deviate from contractual ethics. However, the PPP literature still does little to explore this research topic. This paper analyzes and improves the equilibrium conditions of a renegotiation model of PPPs by introducing the asymmetry of information in the contract. To achieve this goal, the Mechanism Design Theory is used to demonstrate how the correct tracking of the investor directly influences the payoffs of the renegotiation. The study concludes that the lack of incentive constraints in the bidding document, as an ex ante condition, does not provide sufficient information on investor management capability. In this way, this information is only revealed in the renegotiation phase. Consequently, this contract failure results in high political costs to the government due to excessive subsidies.

Keywords: Mechanism Design Theory; Renegotiation of PPPs; Contracting; Opportunistic behavior; Revelation principle (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10726-018-9586-6

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