Concession Model for Fair Distribution of Benefits and Risks in Build-Operate-Transfer Road Projects

Xue, Yan; Chong, Heap‐Yih; Zhou, Jing; Li, Qian

doi:10.3846/jcem.2019.8649

Cited by 9 publications

(8 citation statements)

References 45 publications

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“…Feng et al (2018) studied contracting and renegotiation between governments and loss-averse private firms in reference to BOT road projects. Yan et al (2019) constructed a concession period decision-making model based on inequality aversion theory considering decision makers' fairness preferences to guarantee the fair distribution of benefits and risks of road BOT projects. Bayat et al (2019) developed a trilateral bargaining game model to determine the optimal capital structure and length of a concession period for BOT projects.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Lv et al (2015) developed an optimal concession period model considering traffic volume uncertainties. Yan et al (2019) constructed a concession period determination model for the fair distribution of benefits and risks through a BOT road project. Bayat et al (2020) considered risks and uncertainties in the bargaining game model to determine a concession period, and the CAPM was used to reflect risks and uncertainties of the studied BOT project.…”

Section: Literature Reviewmentioning

confidence: 99%

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Determining a reasonable concession period for risky transportation BOT projects with government subsidies based on cumulative prospect theory

Guo

Xie

2021

ECAM

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PurposeThis paper explores the impact of both government subsidies and decision makers' loss-averse behavior on the determination of transportation build-operate-transfer (BOT) concession periods based on cumulative prospect theory (CPT). The prospect value of a transportation project under traffic risk can be formulated according to the value function for gains and losses and the decision weight for gains and losses. As an extra income for investors, government subsidy is designed for highly risky aspects of BOT transportation projects: uncertain initial traffic volumes and fluctuating growth rates.Design/methodology/approachA decision-making model determining the concession period of a transportation BOT project is proposed by using the Monte-Carlo simulation method based on CPT, and the effects of risky behaviors of private investors on concession period decision making are analyzed. A subsidy method related to the internal rate-of-return (IRR) corresponding to a specific initial traffic volume and growth rate is proposed. The case of an actual BOT highway project is examined to illustrate how the method proposed can be used to determine the concession period of a transportation BOT project considering decision makers' loss-averse behavior and government subsidy. Contingency analysis is discussed to cope with possible misestimating of key factors such as initial traffic volume and cost coefficients. Sensitivity analysis is employed to investigate the impact of CPT parameters on the concession period decisions. An actual BOT case which failed to attract private capital is introduced to show the practical application. The results are then interpreted to conclude this paper.FindingsBased on comparisons drawn between a concession period decision-making model considering the psychological behaviors of decision makers and a model not considering them, the authors conclude that the concession period based on CPT is distinctly different from that of the loss-neutral model. The concession period based on CPT is longer than the loss-neutral concession period. That is, loss-averse private investors tend to ask for long concession periods to make up for losses they will face in the future. Government subsidies serve as extra income for investors, allowing appointed profits to be secured sooner. For the benefit side of contingency variables, the normal state of initial traffic volume, average annual traffic growth rate and bias degree and the government subsidy need to be paid close attention during the project life span. For the cost side of contingency variables, the annual operating cost variable has a significant impact on the length of predicted concession period, while the large-scale cost variable has minor impact.Originality/valueWith an actual BOT highway project, the determination of transportation BOT concession periods based on the psychological behaviors of decision makers is analyzed in this paper. As the psychological behaviors of decision makers heavily impact the decision-making process, the authors analyze their impacts on concession period decision making. Government subsidy is specifically designed for various states of initial traffic volume and fluctuating growth rates to cope with corresponding high risks and mitigate private investors' loss-averse behaviors. Contingency analysis and sensitivity analysis are discussed as the estimated values of parameters may not be authentic in actual situations.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Determining a reasonable concession period for risky transportation BOT projects with government subsidies based on cumulative prospect theory

Guo

Xie

2021

ECAM

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“…The adoption of second-best congestion pricing and variable traffic condition analyses by Verhoef and Rouwendal (2004) and Tsai and Chu (2003) has been central to understanding financial mechanisms in BOT projects [18,19]. This body of work was complemented by the application of the mathematical Pareto model by Niu and Zhang (2013) to scrutinize BOT investments amidst uncertain demand and by Yan and Chong's (2019) use of inequity aversion theory to probe the distribution of risks and benefits within such projects [8,9]. Furthermore, Feng et al (2018) and Shi et al (2020) have contributed models that allow for the negotiation of tolls and road capacities to maximize social welfare while ensuring the economic viability of these projects [10,16].…”

Section: Literature Reviewmentioning

confidence: 99%

Green Tollways: Strategizing Carbon-Emissions-Based Government-Owned Public Toll Road Operations in China

Shang,

Lu,

Zhu

et al. 2024

Sustainability

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When build–operate–transfer (BOT) roads are transferred back to the government upon the expiry of their contract, they are typically considered to be public roads and are no longer subject to tolls. However, in China, BOT roads, after being transferred to the government, remain tolled by the government in order to maintain efficiency. Therefore, such roads are termed public toll roads (PTRs). During the operational phase of PTRs, ongoing operating costs become a significant financial burden compared to the initial investment made for their construction. Against the backdrop of global carbon emission efforts, this paper studies the operational strategy of PTRs in terms of car emission costs, which constitute a portion of PTRs’ operation costs. This paper explores the operational strategy of PTRs, including whether the government should operate the road independently or outsource their operation to a competent private firm. Our analysis concludes that the operator should manage PTRs for the entire duration of their operation by maintaining self-financing while also accounting for operation costs. In this study, governmental regulations for the cost of carbon emissions are also studied.

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“…In other words, the concession period could influence the risks associated with project stakeholders; thus, it is one of the critical contractual parameters in PPP contracts (Carbonara et al , 2014). Numerous researchers have developed decision-making techniques to determine the concession length for PPP projects (Yu and Lam, 2013; Zhang et al , 2018; Yan et al , 2019; Jin et al , 2019; Jin et al , 2020b). However, only a portion of the overall benefits of a highway construction project could be quantified in money values.…”

Section: Analysis Of Research Articlesmentioning

confidence: 99%

Decision making in highway construction: a systematic review and future directions

Radzi

Rahman

Doh

2021

JEDT

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Purpose Various approaches have emerged to assist practitioners in making more informed decisions in highway construction projects. However, industry practitioners are still using subjective ways to make decisions. Also, researchers have developed tools and techniques with similar objectives. Lack of information on what has been developed might lead to those issues. Therefore, this paper aims to review trends of evolution, pinpoint strengths and gaps in the literature and identifies potential future directions for decision-making research in highway construction projects. Design/methodology/approach A systematic review was conducted on published articles on decision-making in highway construction projects using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) technique. Findings The analysis of 101 articles revealed that existing decision-making research in highway construction projects targets improvements in four areas: feasibility, conceptual, detailed scope and detailed design. The four areas consist of sixteen subthemes that are detailed in this study. In addition, most research involved developing decision support tools and systems as well as decision-making models, techniques and frameworks. Lastly, several research areas have emerged, such as adding more decision criteria including those with uncertainties, expanding existing decision-making models into decision support systems, benchmarking decision criteria between different sample populations and exploring inter-and intra-relationships between decision criteria. Originality/value This paper provides an overview of existing research on decision-making in highway construction projects. Also, it reveals research gaps in the body of knowledge to point out directions for future research. Finally, industry practitioners can use the findings to develop strategies for effective decision-making processes.

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Concession Model for Fair Distribution of Benefits and Risks in Build-Operate-Transfer Road Projects

Cited by 9 publications

References 45 publications

Determining a reasonable concession period for risky transportation BOT projects with government subsidies based on cumulative prospect theory

Determining a reasonable concession period for risky transportation BOT projects with government subsidies based on cumulative prospect theory

Green Tollways: Strategizing Carbon-Emissions-Based Government-Owned Public Toll Road Operations in China

Decision making in highway construction: a systematic review and future directions

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