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Using bargaining-game model to negotiate compensation for the early termination of BOT highway projects

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  • Song, Jinbo
  • Jin, Lulu
  • Zhao, Yunpeng
  • Hu, Wenjin

Abstract

Build-operate-transfer (BOT) highway projects are widespread around the world. However, many BOT highway projects are terminated before the expiry of the concession period for a variety of reasons, such as unreasonable decisions and a lack of a risk allocation mechanism. As the most concerning issue for the government and private sector, compensation for early termination has been a major controversy due to the lack of a fair and reasonable decision approach. This paper proposes an effective method to evaluate the compensation amount for projects with incomplete contracts using game theory. First, a bargaining-game model with complete information is constructed to analyse the process of negotiation, for which the influences of the government investing in a new road and the traffic demand changes of the early terminated project on bargaining are taken into consideration. Then, the Nash equilibrium solution of the model is derived by backward induction, and a discussion of the properties of the solution is presented. Finally, the model results are verified using the Wutong Mountain Tunnel BOT project in China. This paper provides a solution to compensation for early termination of BOT highway projects with incomplete contracts.

Suggested Citation

  • Song, Jinbo & Jin, Lulu & Zhao, Yunpeng & Hu, Wenjin, 2017. "Using bargaining-game model to negotiate compensation for the early termination of BOT highway projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 105(C), pages 197-209.
    • Handle: RePEc:eee:transa:v:105:y:2017:i:c:p:197-209
    DOI: 10.1016/j.tra.2017.06.017
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    Cited by:

    1. Liu, Huimin & Song, Shuang & Hu, Yi & Yan, Xue, 2020. "Monte-Carlo optimization model for dynamic capital structure adjustment in Chinese public-private partnerships under revenue uncertainty," Transportation Research Part A: Policy and Practice, Elsevier, vol. 142(C), pages 115-128.
    2. Lei Gao & Zhen-Yu Zhao, 2020. "The Evolutionary Game of Stakeholders’ Coordination Mechanism of New Energy Power Construction PPP Project: A China Case," Sustainability, MDPI, vol. 12(3), pages 1-24, February.
    3. Yu Zeng & Weidong Chen, 2019. "The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China," Energies, MDPI, vol. 12(18), pages 1-23, September.
    4. Zhang, Yiwen & Feng, Zhuo & Zhang, Shuibo, 2018. "The effects of concession period structures on BOT road contracts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 107(C), pages 106-125.
    5. Jing Du & Hongyue Wu & Ruoyu Jin, 2019. "Capital Structure of Public–Private Partnership Projects: A Sustainability Perspective," Sustainability, MDPI, vol. 11(13), pages 1-25, June.
    6. Zheng, Shiyuan & Ge, Ying-En & Fu, Xiaowen & Jiang, Changmin, 2019. "Voluntary carbon offset and airline alliance," Transportation Research Part B: Methodological, Elsevier, vol. 123(C), pages 110-126.
    7. Huige Xing & Yuelin Li & Hongyang Li, 2020. "Renegotiation Strategy of Public-Private Partnership Projects with Asymmetric Information—An Evolutionary Game Approach," Sustainability, MDPI, vol. 12(7), pages 1-23, March.
    8. Lu, Zhaoyang & Meng, Qiang, 2023. "Effects of asymmetric investment cost information on revenue-compensated build-operate-transfer highway contracts," Transportation Research Part B: Methodological, Elsevier, vol. 172(C), pages 71-92.

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