Financial Conflict Resolution for Public-Private Partnership Projects Using a Three-Phase Game Framework

Abstract

Many countries use financial aids to expedite public-private partnership (PPP) projects, depending on their financial status and/or demand for additional infrastructure. Minimum revenue guarantees (MRGs) are one financial aid option that costs the Korean government US$2.7 billion in liabilities annually. To reduce these considerable expenditures, this study proposes resolving financial conflicts using a three-phase game framework with a bargaining phase, a ratification phase, and a decision-making phase. The first two phases are adopted from traditional two-level game theory, and the last phase is added to support sequential negotiations and multiple buyers. To confirm the usability of proposed framework, the authors conduct illustrative case applications with two representative real-life PPP cases. Case 1 shows that qualitative bargaining power can be accurately quantified, and Case 2 demonstrates that empirically calculated values can be used in negotiation practice. The framework proposed in this study reduces the range of negotiation, the time required to negotiate, and the damage caused by conflicts. Additionally, the frame is expected to support strategic negotiations and well-structured decisions in financial conflicts between key stakeholders.