Model for Financial Renegotiation in Public-Private Partnership Projects and Its Policy Implications: Game Theoretic View

TLDR

Public‑private partnerships (PPPs) are increasingly used to deliver infrastructure, but joint ownership and weak administration policies often lead to serious problems, especially when governments rescue distressed projects. The study investigates the conditions under which governments rescue distressed PPP projects and the resulting effects on procurement and management, aiming to supply policymakers with a theoretical basis for effective PPP governance. A game‑theoretic model of government rescue dynamics is constructed, from which propositions, corollaries, and key policy implications are derived. The framework provides researchers with a methodology to analyze the behavioral dynamics among PPP parties.

Abstract

Today, government is no longer considered the sole provider of public works or services. Public-private partnership (PPP) has been recognized as an important approach to solving problems for governments in providing infrastructure systems. However, the joint ownership or partnership in PPP complicates the administration of PPP projects. Too often, in PPP, many serious problems occur mainly because of bad administration policies. In particular, the fact that government may rescue a distressed project and renegotiate with the developer causes major problems in project procurement and management. This paper aims to study when and how government will rescue a distressed project and what impacts government's rescue behavior has on project procurement and management. A game-theory based model for government rescue dynamics is developed. Propositions, corollaries, and important policy implications are then derived from the model. This pilot study, the writer hopes, may provide theoretic foundations to policy makers for prescribing effective PPP procurement and management policies and for examining the quality of PPP policies. The study can also offer researchers a framework and a methodology to understand the behavioral dynamics of the parties in PPP.