A study of risk sharing in PPP projects from the perspective of incomplete information——A case study based on different bidding orders of participants

LI Yan; XUE Jian

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Science Research Management ›› 2021, Vol. 42 ›› Issue (6) : 202-208.

A study of risk sharing in PPP projects from the perspective of incomplete information——A case study based on different bidding orders of participants

Li Yan¹, Xue Jian²

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Abstract

At present Chinese PPP mode has entered a new "Normative development era", and is meeting the new opportunities and challenges in the aspects of the people′s livelihood, such as ecological environment protection and poverty alleviation. However, PPP projects contain complex risk factors. Therefore, effective risk sharing is the key to guarantee the smooth implementation of PPP projects. Government department generally thought that PPP mode can shift more risk to the project company, bank and other private sector. Then private sectors tend to take more risk in order to obtain the advantage position in franchise bidding process. But some risks may be beyond control or private sector management cost is larger, and a chain effect of risk exposure will lead to the failure of PPP mode.
The paper has two research features. First, the paper studies the game process of PPP projects among government departments, companies and banks. Previous literatures paid more attention on risk sharing game between two sectors (government sector and private sector). Second, in the process of constructing the dynamic game model, it analyzes the results of risk sharing ratios considering the participants′ different bid orders. It may be helpful for the participants to put forward a more reasonable negotiation price in the negotiation process based on factors such as negotiating loss factor and transferring share.
This paper uses bargaining game theory under incomplete information, considering different bid orders of government departments, companies and banks in the game process of PPP projects. It respectively constructs the risk sharing models between the government and the "weak alliance", and risk sharing models in an alliance. Then the balanced risk allocation proportions of the three sides are obtained. Finally, the game model is verified based on related parameter values of deterrence and disturbed ability using the method of Delphi expert survey.
Based on the results of game models，the conclusions and theoretical and practical significance are as follows．Firstly, there is a "first-mover advantage" in the process of risk sharing game among the participants of PPP projects, and the risk proportion of the players in the situation of bidding first is lower than that in the case of bidding later. Secondly, when this party has weaker perturbation ability and the other party has stronger deterrent ability, this party will have higher negotiation loss coefficient. In order to avoid more time and energy costs, the negotiation should be concluded as soon as possible. Thirdly, the actual risk sharing proportions of participators in the process of risk sharing depend on negotiations loss coefficients. In the process of contract negotiations, three parties can make negotiation decision and put forward a reasonable price, after predicting the transfer risk share due to government′ authority and the public interest protection.
Research conclusion can effectively promote the cultivation of rational behavior and caution concept of PPP projects′ participants. The PPP project risk allocation proportion can be regarded as benchmark contract negotiations. Then the parties obtain fair and reasonable rights, obligations and risk responsibility. And for PPP participants，it may help to effectively shorten the negotiations time, reduce the cost of risk management and provide policy suggestions to ensure PPP smooth operation.

Key words

PPP Mode / risk sharing / bargaining game / bidding order

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Li Yan, Xue Jian. A study of risk sharing in PPP projects from the perspective of incomplete information——A case study based on different bidding orders of participants[J]. Science Research Management. 2021, 42(6): 202-208

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