Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach

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 i...

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Bibliographic Details
Published in:Group decision and negotiation 2018-12, Vol.27 (6), p.949-979
Main Authors: Russo, Julio Cezar, Dias, Marco Antonio Guimarães, Barreira da Silva Rocha, André, Cyrino Oliveira, Fernando Luiz
Format: Article
Language:English
Subjects:
Biological and Physical Anthropology
Business and Management
Design theory
Ethics
Game theory
Negotiation
Partnerships
Public private partnerships
Subsidies
Tracking
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Summary: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.
ISSN:0926-2644
1572-9907
DOI:10.1007/s10726-018-9586-6