IDEAS home Printed from https://ideas.repec.org/a/eee/transb/v44y2010i4p415-433.html
   My bibliography  Save this article

Properties of Pareto-efficient contracts and regulations for road franchising

Author

Listed:
  • Tan, Zhijia
  • Yang, Hai
  • Guo, Xiaolei

Abstract

Private provision of public roads through build-operate-transfer (BOT) contracts is increasing around the world. This paper investigates the properties of Pareto-efficient BOT contracts using a bi-objective programming approach under perfect information. Under certain conventional assumptions, we find that for any Pareto-efficient BOT contract: (1) the concession period should be set to be the whole road life; (2) the volume-capacity ratio (or the road service quality) and the average social cost per trip are constantly equal to those at the social optimum whenever there are constant returns to scale in road construction. Extensions are made to the cases with increasing (decreasing) returns to scale in road construction. A variety of regulatory regimes are investigated to analyze the behavior of the profit-maximizing private firm, and efficient regulations, including demand and markup charge regulations, are elucidated for both the public and private sectors to achieve a predetermined Pareto-optimal outcome.

Suggested Citation

  • Tan, Zhijia & Yang, Hai & Guo, Xiaolei, 2010. "Properties of Pareto-efficient contracts and regulations for road franchising," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 415-433, May.
    • Handle: RePEc:eee:transb:v:44:y:2010:i:4:p:415-433
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0191-2615(09)00119-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Erik T. Verhoef & Jan Rouwendal, 2004. "Pricing, Capacity Choice, and Financing in Transportation Networks," Journal of Regional Science, Wiley Blackwell, vol. 44(3), pages 405-435, August.
    2. Robin Lindsey, 2006. "Do Economists Reach A Conclusion on Road Pricing? The Intellectual History of an Idea," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 292-379, May.
    3. Ubbels, Barry & Verhoef, Erik T., 2008. "Auctioning concessions for private roads," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(1), pages 155-172, January.
    4. Arthur M. Geoffrion, 1967. "Solving Bicriterion Mathematical Programs," Operations Research, INFORMS, vol. 15(1), pages 39-54, February.
    5. Yang, Hai & Meng, Qiang, 2000. "Highway pricing and capacity choice in a road network under a build-operate-transfer scheme," Transportation Research Part A: Policy and Practice, Elsevier, vol. 34(3), pages 207-222, April.
    6. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
    7. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
    8. Xiao, Feng & Yang, Hai & Han, Deren, 2007. "Competition and efficiency of private toll roads," Transportation Research Part B: Methodological, Elsevier, vol. 41(3), pages 292-308, March.
    9. Keeler, Theodore E & Small, Kenneth A, 1977. "Optimal Peak-Load Pricing, Investment, and Service Levels on Urban Expressways," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 1-25, February.
    10. Guo, Xiaolei & Yang, Hai, 2009. "User heterogeneity and bi-criteria system optimum," Transportation Research Part B: Methodological, Elsevier, vol. 43(4), pages 379-390, May.
    11. Nombela, Gustavo & de Rus, Ginés, 2004. "Flexible-term contracts for road franchising," Transportation Research Part A: Policy and Practice, Elsevier, vol. 38(3), pages 163-179, March.
    12. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    13. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 1997. "Highway Franchising: Pitfalls and Opportunities," American Economic Review, American Economic Association, vol. 87(2), pages 68-72, May.
    14. Kenneth E. Train, 1991. "Optimal Regulation: The Economic Theory of Natural Monopoly," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200848, April.
    15. Yang, Hai & Meng, Qiang, 2002. "A note on "highway pricing and capacity choice in a road network under a build-operate-transfer scheme"," Transportation Research Part A: Policy and Practice, Elsevier, vol. 36(7), pages 659-663, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tan, Zhijia & Yang, Hai, 2012. "Flexible build-operate-transfer contracts for road franchising under demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1419-1439.
    2. Meng, Qiang & Lu, Zhaoyang, 2017. "Quantitative analyses of highway franchising under build-operate-transfer scheme: Critical review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 102(C), pages 105-123.
    3. 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.
    4. Yin, Yafeng & Guo, Xiaolei, 2016. "Optimal choice of capacity, toll and government guarantee for build-operate-transfer roads under asymmetric cost informationAuthor-Name: Shi, Shasha," Transportation Research Part B: Methodological, Elsevier, vol. 85(C), pages 56-69.
    5. Wu, Di & Yin, Yafeng & Lawphongpanich, Siriphong, 2011. "Optimal selection of build–operate-transfer projects on transportation networks," Transportation Research Part B: Methodological, Elsevier, vol. 45(10), pages 1699-1709.
    6. Lu, Zhaoyang & Meng, Qiang, 2017. "Analysis of optimal BOT highway capacity and economic toll adjustment provisions under traffic demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 100(C), pages 17-37.
    7. Lu, Zhaoyang & Meng, Qiang, 2018. "Impacts of pavement deterioration and maintenance cost on Pareto-efficient contracts for highway franchising," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 1-21.
    8. Shu, Hang & Durango-Cohen, Pablo L., 2021. "On the design of optimal auctions for road concessions: Firm selection, government payments, toll and capacity schedules with imperfect information," Transportation Research Part B: Methodological, Elsevier, vol. 146(C), pages 210-236.
    9. Feng, Zhuo & Zhang, Yiwen & Zhang, Shuibo & Song, Jinbo, 2018. "Contracting and renegotiating with a loss-averse private firm in BOT road projects," Transportation Research Part B: Methodological, Elsevier, vol. 112(C), pages 40-72.
    10. Niu, Baozhuang & Zhang, Jie, 2013. "Price, capacity and concession period decisions of Pareto-efficient BOT contracts with demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 53(C), pages 1-14.
    11. 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.
    12. van den Berg, Vincent A.C., 2013. "Serial private infrastructures," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 186-202.
    13. Wang, Wei (Walker) & Jin, Xi & Tan, Zhijia & Sun, Huijun & Wu, Jianjun, 2022. "Modeling the effects of government subsidy and regulation on BOT transport project contract design within contractible service quality," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    14. Feng, Zhuo & Song, Jinbo & Yang, Xiaoxing & Guo, Ran, 2023. "Contractual flexibility, firm effort, and subsidy design: A comparison of PPP project contracts," European Journal of Operational Research, Elsevier, vol. 307(1), pages 484-496.
    15. van den Berg, Vincent A.C. & Rouwendal, Jan, 2016. "Tender auctions with existing operators bidding," Economics of Transportation, Elsevier, vol. 6(C), pages 1-10.
    16. Hoang-Tung, Nguyen & Viet Hung, Do & Kato, Hironori & Binh, Phan Le, 2021. "Modeling ceiling price for build-operate-transfer road projects in developing countries," Economics of Transportation, Elsevier, vol. 28(C).
    17. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying, 2015. "Modeling the impact of government guarantees on toll charge, road quality and capacity for Build-Operate-Transfer (BOT) road projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 54-67.
    18. Chen, Zhiyuan & Sun, Shaobo & Li, Jianbin & Zhang, Langlang & Fan, Hao, 2022. "Optimal BOT contracts in a two-road transportation network," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    19. Fu, Xinying & van den Berg, Vincent A.C. & Verhoef, Erik T., 2018. "Private road networks with uncertain demand," Research in Transportation Economics, Elsevier, vol. 70(C), pages 57-68.
    20. Bao, Yue & Gao, Ziyou & Yang, Hai & Xu, Meng & Wang, Guangmin, 2017. "Private financing and mobility management of road network with tradable credits," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 158-176.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transb:v:44:y:2010:i:4:p:415-433. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/548/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.