An Efficiency Analysis of Availability Payment Mechanisms in PPP Projects

Prof Lei Shi
Visiting Associate Professor, Kyoto University, Japan

Abstract

This paper aims to investigate the incentive mechanism of different availability payment mechanisms applied in Public private partnership (PPP) projects. Although the availability payment mechanism which normally involves two key determinants of payment – output of the facilities and the service and performance of the service has been widely used in both developed and developing countries, the payment method is different. We present a model of procurement in a multitask environment in which a risk-averse SPV chooses noncontractible efforts in cost reduction and quality defection. We find that the payment mechanism using separate charges for availability and performance is more efficient than which using single unitary charge, because risks occurring in the construction and operation phases are more properly allocated under the former payment mechanism. However, the latter payment mechanism will be more efficient if the quality defection is n! ot verifiable and the operational risk is relatively larger than the completion risk.


Biography
After receiving the Ph.D. degree in Urban Management from Kyoto University, Kyoto, in 2004, he became an Assistant Professor with the School of Management, Dalian University of Technology, China. Since 2011, he has been an Associate Professor with the Department of Construction Management, Faculty of Infrastructure Engineering, Dalian University of Technology, China. Now, he is Visiting Associate Professor at the Disaster Prevention Research Institute, Kyoto University, Japan. He is the author of two books and more than 60 refereed academic papers. His research interests include contractual governance of construction projects, institutional design for PPP projects. Dr. Shi was a recipient of JSCE Young Researcher Award (Japan Society of Civil Engineers) in 2005. He received the prize of the sixth outstanding achievements of the Ministry of education in scientific research (Ministry of Education in China) in 2013.

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