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Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach

Author

Listed:
  • Julio Cezar Russo

    (Federal Rural University of Rio de Janeiro - DPCE/UFRRJ
    Pontifical Catholic University of Rio de Janeiro)

  • Marco Antonio Guimarães Dias

    (Pontifical Catholic University of Rio de Janeiro)

  • André Barreira da Silva Rocha

    (Pontifical Catholic University of Rio de Janeiro)

  • Fernando Luiz Cyrino Oliveira

    (Pontifical Catholic University of Rio de Janeiro)

Abstract

Game theory is an important analytical tool for measuring problems caused by behaviors that deviate from contractual ethics. However, the PPP literature still does little to explore this research topic. This paper analyzes and improves the equilibrium conditions of a renegotiation model of PPPs by introducing the asymmetry of information in the contract. To achieve this goal, the Mechanism Design Theory is used to demonstrate how the correct tracking of the investor directly influences the payoffs of the renegotiation. The study concludes that the lack of incentive constraints in the bidding document, as an ex ante condition, does not provide sufficient information on investor management capability. In this way, this information is only revealed in the renegotiation phase. Consequently, this contract failure results in high political costs to the government due to excessive subsidies.

Suggested Citation

  • Julio Cezar Russo & Marco Antonio Guimarães Dias & André Barreira da Silva Rocha & Fernando Luiz Cyrino Oliveira, 2018. "Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach," Group Decision and Negotiation, Springer, vol. 27(6), pages 949-979, December.
    • Handle: RePEc:spr:grdene:v:27:y:2018:i:6:d:10.1007_s10726-018-9586-6
    DOI: 10.1007/s10726-018-9586-6
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    References listed on IDEAS

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    Cited by:

    1. 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.

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