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Using Bargaining Game Model to Negotiate Government Subsidy for PPP Infrastructure Projects
Public-private partnership (PPP) is widely used in infrastructure projects. However, due to the positive externality of the projects, it’s common for the private sector to meet rising deficit, which leads to inevitable cost reduction and poor operation performance, as a result subsidy from the government is necessary. This study focuses on subsidy negotiation for PPP projects in deficit, assuming that the private sector takes measures to reduce cost until it receives the subsidy. First, a bargaining-game model is established to describe the process of subsidy negotiation between the government and the private sector, including the discount factors of both parties. Second, the Nash equilibrium solution of the model is derived and the influence of discount factors on on the optimal subsidy is discussed. The results indicate that when the total amount of negotiable subsidy is insufficient, the optimal subsidy and the government saving value decrease in the private sector’s discount factor, otherwise they increase in the private sector’s discount factor. Besides, the optimal subsidy and the government saving value decrease in the government’s discount factor. This study contributes in literature on the determination of government subsidy and provides negotiation guidelines for both parties in practice.
Using Bargaining Game Model to Negotiate Government Subsidy for PPP Infrastructure Projects
Public-private partnership (PPP) is widely used in infrastructure projects. However, due to the positive externality of the projects, it’s common for the private sector to meet rising deficit, which leads to inevitable cost reduction and poor operation performance, as a result subsidy from the government is necessary. This study focuses on subsidy negotiation for PPP projects in deficit, assuming that the private sector takes measures to reduce cost until it receives the subsidy. First, a bargaining-game model is established to describe the process of subsidy negotiation between the government and the private sector, including the discount factors of both parties. Second, the Nash equilibrium solution of the model is derived and the influence of discount factors on on the optimal subsidy is discussed. The results indicate that when the total amount of negotiable subsidy is insufficient, the optimal subsidy and the government saving value decrease in the private sector’s discount factor, otherwise they increase in the private sector’s discount factor. Besides, the optimal subsidy and the government saving value decrease in the government’s discount factor. This study contributes in literature on the determination of government subsidy and provides negotiation guidelines for both parties in practice.
Using Bargaining Game Model to Negotiate Government Subsidy for PPP Infrastructure Projects
Liu, Yunfeng (author) / Wang, Xueqing (author) / Guo, Sijia (author) / Chen, Jie (author)
Construction Research Congress 2020 ; 2020 ; Tempe, Arizona
Construction Research Congress 2020 ; 186-195
2020-11-09
Conference paper
Electronic Resource
English
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