doi: 10.3934/jimo.2018137

Fairness preference based decision-making model for concession period in PPP projects

1. 

School of Management and Engineering, Nanjing University, 22 Hankou Road, Nanjing 210093, China

2. 

School of Built Environment, Curtin University, Perth, WA 6102, Australia

* Corresponding author: Feng Xu

Received  December 2016 Revised  September 2017 Published  September 2018

Fund Project: The first author is supported by Major Program of National Natural Science Foundation of China (71390521), National Natural Science Foundation of China(91646123, 71671088, 71271107, 71571098, 71501102, 71471077) and Innovation project project of graduate students in Jiangsu(KYZZ16 0026)

Both government and private sector have the characteristic of fairness preference when deciding a suitable concession period for infrastructure projects. The appropriate concession period is helpful to construct the Public-Private-Partnership (PPP) project, to alleviate government's financial burden, and to boast the economic growth. Therefore, this paper aims to develop a decision-making model of concession period with fairness preference based on the two sides' equitable utilities. To better describe decision makers' fair psychology, the Nash bargaining game solution was adopted as a fair reference point. The results show that the concession period with fairness preference will become longer than that without fairness preference. Furthermore, the longer the concession period is, the better construction quality of the infrastructure project (highway) is. So, decision makers with fairness preference tend to make good decisions. In conclusion, the developed decision-making model renders useful references for both government and private sector in negotiating the concession period for infrastructure projects.

Citation: Xue Yan, Heap-Yih Chong, Jing Zhou, Zhaohan Sheng, Feng Xu. Fairness preference based decision-making model for concession period in PPP projects. Journal of Industrial & Management Optimization, doi: 10.3934/jimo.2018137
References:
[1]

H. BaoY. PengJ. H. Ablanedo-Rosas and H. Gao, An alternative incomplete information bargaining model for identifying the reasonable concession period of a BOT project, International Journal of Project Management, 33 (2015), 1151-1159. doi: 10.1016/j.ijproman.2014.12.004.

[2]

G. E. Bolton and A. Ockenfels, ERC: A theory of equity, reciprocity, and competition, Levines Working Paper Archive, 90 (2000), 166-193. doi: 10.1257/aer.90.1.166.

[3]

N. CarbonaraN. Costantino and R. Pellegrino, Concession period for PPPs: A win-win model for a fair risk sharing, International Journal of Project Management, 32 (2014), 1223-1232. doi: 10.1016/j.ijproman.2014.01.007.

[4]

G. Charness and M. Rabin, Understanding social preference with simple tests, Quaterly Journal of Economics, 117 (2002), 817-869.

[5]

C. DingK. Wang and S. Lai, Channel coordination mechanism with retailers having fairness preference-An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982. doi: 10.3934/jimo.2013.9.967.

[6]

R. Osei-Kyei and A. P. Chan, Review of studies on the Critical Success Factors for Public-Private Partnership (PPP) projects from 1990 to 2013, International Journal of Project Management, 33 (2015), 1335-1346. doi: 10.1016/j.ijproman.2015.02.008.

[7]

E. M. R. A. Engel and A. Galetovic, Least-Present-Value-of-Revenue Auctions and Highway Franchising, Documentos De Trabajo, 109 (1998), 993-1020. doi: 10.3386/w6689.

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J. Delmon, Public-private Partnership Projects in Infrastructure: An Essential Guide for Policy Makers, Cambridge University Press, 2017.

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E. Fehr and K. M. Schmidt, A theory of fairness, competition, and cooperation, Quarterly Journal of Economics, (1999), 817-868.

[10]

A. A. JavedP. T. Lam and A. P. Chan, Change negotiation in public-private partnership projects through output specifications: An experimental approach based on game theory, Construction Management and Economics, 32 (2014), 323-348.

[11]

B. GlumacQ. HanW. Schaefer and E. van der Krabben, Negotiation issues in forming public-private partnerships for brownfield redevelopment: Applying a game theoretical experiment, Land Use Policy, 47 (2015), 66-77. doi: 10.1016/j.landusepol.2015.03.018.

[12]

S. Hanaoka and H. P. Palapus, Reasonable concession period for build-operate-transfer road projects in the Philippines, International Journal of Project Management, 30 (2012), 938-949. doi: 10.1016/j.ijproman.2012.02.001.

[13]

T. H. HoX. Su and Y. Wu, Distributional and peer-induced fairness in supply chain contract design, Historical Journal of Film Radio and Television, 23 (2014), 161-175.

[14]

D. Kahneman and R. H. Thaler, Fairness and the assumptions of economics, Journal of Business, 59 (1986), 285-300. doi: 10.1086/296367.

[15]

M. LashgariA. A. Taleizadeh and S. S. Sana, An inventory control problem for deteriorating items with back-ordering and financial considerations under two levels of trade credit linked to order quantity, Journal of Industrial and Management Optimization, 12 (2016), 1091-1119. doi: 10.3934/jimo.2016.12.1091.

[16]

J. LvG. YeW. LiuL. Shen and H. Wang, Alternative model for determining the optimal concession period in managing bot transportation projects, Journal of Management in Engineering, 31 (2014), 04014066, 1-7. doi: 10.1061/(ASCE)ME.1943-5479.0000291.

[17]

J. A. MolinaA. FerrerJ. I. Giménez-NadalC. Gracia-LázaroY. Moreno and A. Sanchez, Intergenerational cooperation within the household: A Public Good game with three generations, Review of Economics of the Household, 2018 (2018), 1-18.

[18]

K. Mostafa, N. Farnad and A. Majid, Using Fuzzy-Delphi technique to determine the concession period in BOT projects, in Information and Financial Engineering (ICIFE), 2010 2nd IEEE International Conference on, 2010, IEEE. doi: 10.1109/ICIFE.2010.5609396.

[19]

F. John and J. R. Nash, The bargaining problem, Econometrica: Journal of the Econometric Society, 18 (1950), 155-162. doi: 10.2307/1907266.

[20]

T. Nash, The colorimetric estimation of formaldehyde by means of the hantzsch reaction, Biochemical Journal, 55 (1953), 416-421. doi: 10.1042/bj0550416.

[21]

S. T. NgJ. XieM. Skitmore and Y. K. Cheung, A fuzzy simulation model for evaluating the concession items of public private partnership schemes, Automation in Construction, 17 (2007), 22-29.

[22]

M. Rabin, Incorporating fairness into game theory and economics, American Economic Review, 83 (1993), 1281-1302.

[23]

A. N. SadighS. K. Chaharsooghi and M. Sheikhmohammady, A game theoretic approach to coordination of pricing, advertising and inventory decisions in a competitive supply chain, Journal of Industrial and Management Optimization, 12 (2016), 337-355. doi: 10.3934/jimo.2016.12.337.

[24]

P. A. Samuelson, Altruism as a problem involving group versus individual selection in economics and biology, The American Economic Review, 83 (1993), 143-148.

[25]

A. Sen, Rationality and social choice, Readings in Microeconomic Theory, 439 (1997).

[26]

Y. ZhangZ. Feng and S. Zhang, The effects of concession period structures on BOT road contracts, Transportation Research Part A: Policy and Practice, 107 (2018), 106-125. doi: 10.1016/j.tra.2017.11.018.

[27]

L. ShenH. BaoY. Wu and W. Lu, Using bargaining-game theory for negotiating concession period for BOT-type contract, Journal of construction engineering and management, 133 (2007), 385-392. doi: 10.1061/(ASCE)0733-9364(2007)133:5(385).

[28]

L. Y. ShenH. Li and Q. M. Li, Alternative concession model for build operate transfer contract projects, Journal of Construction Engineering and Management, 131 (2002), 211-220. doi: 10.1061/(ASCE)0733-9364(2002)128:4(326).

[29]

Y. ShenJ. Xie and T. Li, The risk-averse newsvendor game with competition on demand, Journal of Industrial and Management Optimization, 12 (2016), 931-947. doi: 10.3934/jimo.2016.12.931.

[30]

Z. ChengY. KeJ. LinZ. Yang and J. Cai, Spatio-temporal dynamics of public private partnership projects in China, International Journal of Project Management, 34 (2016), 1242-1251. doi: 10.1016/j.ijproman.2016.05.006.

[31]

Y. Wang and J. Liu, Evaluation of the excess revenue sharing ratio in PPP projects using principal-agent models, International Journal of Project Management, 33 (2015), 1317-1324. doi: 10.1016/j.ijproman.2015.03.002.

[32]

M. WuK. W. ChauQ. Shen and L. Y. Shen, Net asset value-based concession duration model for bot contracts, Journal of Construction Engineering and Management, 138 (2011), 304-308. doi: 10.1061/(ASCE)CO.1943-7862.0000397.

[33]

W. Xing and F. Wu, A game-theoretical model of private power production, International Journal of Electrical Power and Energy Systems, 23 (2001), 213-218. doi: 10.1016/S0142-0615(00)00059-4.

[34]

H. YangJ. Zhou and J. He, Decision-Making model on concession term for traffic BOT project on the basis of game theory, Journal of Management Engineering, 17 (2003), 93-95.

[35]

C. YuK. C. Lam and P. Yung, Factors that influence the concession period length for tunnel projects under BOT contracts, Journal of Management in Engineering, 30 (2013), 108-121. doi: 10.1061/(ASCE)ME.1943-5479.0000180.

[36]

X. Zhang, Web-based concession period analysis system, Expert Systems with Applications, 38 (2011), 13532-13542. doi: 10.1016/j.eswa.2011.04.030.

[37]

X. Zhang, Win-win concession period determination methodology, Journal of Construction Engineering and Management,, 135 (2009), 550-558. doi: 10.1061/(ASCE)CO.1943-7862.0000012.

[38]

L. L. Zhao and D. Q. Tan, Analysis on concession term decisions of bot projects based on social benefits, Journal of Industrial Engineering and Engineering Management, 23 (2009), 125-130.

show all references

References:
[1]

H. BaoY. PengJ. H. Ablanedo-Rosas and H. Gao, An alternative incomplete information bargaining model for identifying the reasonable concession period of a BOT project, International Journal of Project Management, 33 (2015), 1151-1159. doi: 10.1016/j.ijproman.2014.12.004.

[2]

G. E. Bolton and A. Ockenfels, ERC: A theory of equity, reciprocity, and competition, Levines Working Paper Archive, 90 (2000), 166-193. doi: 10.1257/aer.90.1.166.

[3]

N. CarbonaraN. Costantino and R. Pellegrino, Concession period for PPPs: A win-win model for a fair risk sharing, International Journal of Project Management, 32 (2014), 1223-1232. doi: 10.1016/j.ijproman.2014.01.007.

[4]

G. Charness and M. Rabin, Understanding social preference with simple tests, Quaterly Journal of Economics, 117 (2002), 817-869.

[5]

C. DingK. Wang and S. Lai, Channel coordination mechanism with retailers having fairness preference-An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982. doi: 10.3934/jimo.2013.9.967.

[6]

R. Osei-Kyei and A. P. Chan, Review of studies on the Critical Success Factors for Public-Private Partnership (PPP) projects from 1990 to 2013, International Journal of Project Management, 33 (2015), 1335-1346. doi: 10.1016/j.ijproman.2015.02.008.

[7]

E. M. R. A. Engel and A. Galetovic, Least-Present-Value-of-Revenue Auctions and Highway Franchising, Documentos De Trabajo, 109 (1998), 993-1020. doi: 10.3386/w6689.

[8]

J. Delmon, Public-private Partnership Projects in Infrastructure: An Essential Guide for Policy Makers, Cambridge University Press, 2017.

[9]

E. Fehr and K. M. Schmidt, A theory of fairness, competition, and cooperation, Quarterly Journal of Economics, (1999), 817-868.

[10]

A. A. JavedP. T. Lam and A. P. Chan, Change negotiation in public-private partnership projects through output specifications: An experimental approach based on game theory, Construction Management and Economics, 32 (2014), 323-348.

[11]

B. GlumacQ. HanW. Schaefer and E. van der Krabben, Negotiation issues in forming public-private partnerships for brownfield redevelopment: Applying a game theoretical experiment, Land Use Policy, 47 (2015), 66-77. doi: 10.1016/j.landusepol.2015.03.018.

[12]

S. Hanaoka and H. P. Palapus, Reasonable concession period for build-operate-transfer road projects in the Philippines, International Journal of Project Management, 30 (2012), 938-949. doi: 10.1016/j.ijproman.2012.02.001.

[13]

T. H. HoX. Su and Y. Wu, Distributional and peer-induced fairness in supply chain contract design, Historical Journal of Film Radio and Television, 23 (2014), 161-175.

[14]

D. Kahneman and R. H. Thaler, Fairness and the assumptions of economics, Journal of Business, 59 (1986), 285-300. doi: 10.1086/296367.

[15]

M. LashgariA. A. Taleizadeh and S. S. Sana, An inventory control problem for deteriorating items with back-ordering and financial considerations under two levels of trade credit linked to order quantity, Journal of Industrial and Management Optimization, 12 (2016), 1091-1119. doi: 10.3934/jimo.2016.12.1091.

[16]

J. LvG. YeW. LiuL. Shen and H. Wang, Alternative model for determining the optimal concession period in managing bot transportation projects, Journal of Management in Engineering, 31 (2014), 04014066, 1-7. doi: 10.1061/(ASCE)ME.1943-5479.0000291.

[17]

J. A. MolinaA. FerrerJ. I. Giménez-NadalC. Gracia-LázaroY. Moreno and A. Sanchez, Intergenerational cooperation within the household: A Public Good game with three generations, Review of Economics of the Household, 2018 (2018), 1-18.

[18]

K. Mostafa, N. Farnad and A. Majid, Using Fuzzy-Delphi technique to determine the concession period in BOT projects, in Information and Financial Engineering (ICIFE), 2010 2nd IEEE International Conference on, 2010, IEEE. doi: 10.1109/ICIFE.2010.5609396.

[19]

F. John and J. R. Nash, The bargaining problem, Econometrica: Journal of the Econometric Society, 18 (1950), 155-162. doi: 10.2307/1907266.

[20]

T. Nash, The colorimetric estimation of formaldehyde by means of the hantzsch reaction, Biochemical Journal, 55 (1953), 416-421. doi: 10.1042/bj0550416.

[21]

S. T. NgJ. XieM. Skitmore and Y. K. Cheung, A fuzzy simulation model for evaluating the concession items of public private partnership schemes, Automation in Construction, 17 (2007), 22-29.

[22]

M. Rabin, Incorporating fairness into game theory and economics, American Economic Review, 83 (1993), 1281-1302.

[23]

A. N. SadighS. K. Chaharsooghi and M. Sheikhmohammady, A game theoretic approach to coordination of pricing, advertising and inventory decisions in a competitive supply chain, Journal of Industrial and Management Optimization, 12 (2016), 337-355. doi: 10.3934/jimo.2016.12.337.

[24]

P. A. Samuelson, Altruism as a problem involving group versus individual selection in economics and biology, The American Economic Review, 83 (1993), 143-148.

[25]

A. Sen, Rationality and social choice, Readings in Microeconomic Theory, 439 (1997).

[26]

Y. ZhangZ. Feng and S. Zhang, The effects of concession period structures on BOT road contracts, Transportation Research Part A: Policy and Practice, 107 (2018), 106-125. doi: 10.1016/j.tra.2017.11.018.

[27]

L. ShenH. BaoY. Wu and W. Lu, Using bargaining-game theory for negotiating concession period for BOT-type contract, Journal of construction engineering and management, 133 (2007), 385-392. doi: 10.1061/(ASCE)0733-9364(2007)133:5(385).

[28]

L. Y. ShenH. Li and Q. M. Li, Alternative concession model for build operate transfer contract projects, Journal of Construction Engineering and Management, 131 (2002), 211-220. doi: 10.1061/(ASCE)0733-9364(2002)128:4(326).

[29]

Y. ShenJ. Xie and T. Li, The risk-averse newsvendor game with competition on demand, Journal of Industrial and Management Optimization, 12 (2016), 931-947. doi: 10.3934/jimo.2016.12.931.

[30]

Z. ChengY. KeJ. LinZ. Yang and J. Cai, Spatio-temporal dynamics of public private partnership projects in China, International Journal of Project Management, 34 (2016), 1242-1251. doi: 10.1016/j.ijproman.2016.05.006.

[31]

Y. Wang and J. Liu, Evaluation of the excess revenue sharing ratio in PPP projects using principal-agent models, International Journal of Project Management, 33 (2015), 1317-1324. doi: 10.1016/j.ijproman.2015.03.002.

[32]

M. WuK. W. ChauQ. Shen and L. Y. Shen, Net asset value-based concession duration model for bot contracts, Journal of Construction Engineering and Management, 138 (2011), 304-308. doi: 10.1061/(ASCE)CO.1943-7862.0000397.

[33]

W. Xing and F. Wu, A game-theoretical model of private power production, International Journal of Electrical Power and Energy Systems, 23 (2001), 213-218. doi: 10.1016/S0142-0615(00)00059-4.

[34]

H. YangJ. Zhou and J. He, Decision-Making model on concession term for traffic BOT project on the basis of game theory, Journal of Management Engineering, 17 (2003), 93-95.

[35]

C. YuK. C. Lam and P. Yung, Factors that influence the concession period length for tunnel projects under BOT contracts, Journal of Management in Engineering, 30 (2013), 108-121. doi: 10.1061/(ASCE)ME.1943-5479.0000180.

[36]

X. Zhang, Web-based concession period analysis system, Expert Systems with Applications, 38 (2011), 13532-13542. doi: 10.1016/j.eswa.2011.04.030.

[37]

X. Zhang, Win-win concession period determination methodology, Journal of Construction Engineering and Management,, 135 (2009), 550-558. doi: 10.1061/(ASCE)CO.1943-7862.0000012.

[38]

L. L. Zhao and D. Q. Tan, Analysis on concession term decisions of bot projects based on social benefits, Journal of Industrial Engineering and Engineering Management, 23 (2009), 125-130.

Figure 1.  The influence of government's fair preference degree on concession period and decision makers' expected fair interest
Figure 2.  The influence of private's fair preference degree on concession period and decision makers' expected fair interest
Figure 3.  The influence of both sides' fair preference degree on concession period
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