Price, Capacity and Concession Period Decisions of Pareto-Efficient BOT Contracts with Demand Uncertainty.

Transportation Research Part E, 53 (July), 2013

35 Pages Posted: 28 Jul 2014

See all articles by Niu Baozhuang

Niu Baozhuang

Lingnan College, Sun Yat-Sen University

Jie Zhang

Guangdong University of Finance and Economics

Date Written: February 18, 2013

Abstract

In this paper, we study the impact of demand uncertainty on the build-operate-transfer (BOT) contract design by optimizing a bi-objective problem via three critical decisions: toll, capacity and concession period. We derive the optimums and identify the public and private sector’s economic incentives. We find that the optimal length of concession period and the service quality of the infrastructure depend on the two parties’ operational costs and negotiation powers. Under mild conditions, we prove that the government will build a larger capacity but charge less than the private sector. Furthermore, the efficiency of BOT contract is improved with demand uncertainty.

Keywords: BOT contract, Demand uncertainty, Infrastructure privatization, Economic efficiency

Suggested Citation

Baozhuang, Niu and Zhang, Jie, Price, Capacity and Concession Period Decisions of Pareto-Efficient BOT Contracts with Demand Uncertainty. (February 18, 2013). Transportation Research Part E, 53 (July), 2013, Available at SSRN: https://ssrn.com/abstract=2472634

Niu Baozhuang

Lingnan College, Sun Yat-Sen University ( email )

Guangzhou
China

Jie Zhang (Contact Author)

Guangdong University of Finance and Economics ( email )

21 Luntou Road
Guangzhou, Guangdong 510320
China

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