Development of a Regulatory Mechanism for Key Stages in Public–Private Partnerships

Abstract

In public–private partnership (PPP) projects, the government delegates the design, construction, and maintenance of an infrastructure system to the private sector. The concessionaire is responsible for the operation over a long duration before the ownership is transferred back to the government. A key factor affecting the success of PPP projects is that concessionaires often engage in opportunistic behavior to gain extra benefits at the expense of the public interest. Corresponding regulations to curb such opportunistic behavior are necessary by governments. In the PPP context, the regulations involve life-cycle activities covering all the stages. To overcome opportunistic behavior and establish regulations, the interaction between the government and the concessionaire in various stages of a PPP project is analyzed extensively in the current study based on the principal–agent theory. Overall, this study contributes a whole-life governance model to analyze the concessionaire’s behavior at every step, and the effect on the social welfare of a PPP project investigates the interaction effects between different PPP stages and helps the government to determine a suitable incentive mechanism to decrease the occurrence of opportunistic behavior. Subsequently, a decision support system is proposed for policy implementation based on the developed model.