Risk distribution and benefit analysis of PPP projects based on public participation
Abstract
This paper aims to formulate a new PPP project public-participation mechanism that uses “public satisfaction” as a direct influencing factor in conjunction with the public-private benefit model to achieve a substantial response from project stakeholders regarding public satisfaction and ensure the transparency of PPP project operation. The proposed model, combined public satisfaction assessment with the principal-agent model, investigates the influence of public satisfaction on investors’ efforts and the benefit or risk distribution between the government and private investors. The results show that the public’s satisfaction level with the project directly affects the proportion of public and private income distribution, which provides a way for the public to directly play a substantive and positive role in PPP projects to guarantee public benefits and the smooth implementation. The increase in the public satisfaction evaluation of either the government or the investors, helps improve the overall effectiveness of PPP projects.
Keyword : public-private partnership projects, public participation, principal-agent theory, risk distribution, benefit analysis, project utility
How to Cite
Wang, Y. ., & Gao, R. (2020). Risk distribution and benefit analysis of PPP projects based on public participation. International Journal of Strategic Property Management, 24(4), 215-225. https://doi.org/10.3846/ijspm.2020.12329
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Brandts, J., & Schram, A. (2001). Cooperation and noise in public goods experiments: applying the contribution function approach. Journal of Public Economic, 79(2), 399–427.
https://doi.org/10.1016/S0047-2727(99)00120-6
Buyukyoran, F., & Gundes, S. (2018). Optimized real optionsbased approach for government guarantees in PPP toll road projects. Construction Management and Economics, 36(4), 203–216. https://doi.org/10.1080/01446193.2017.1347267
Cui, C., Liu, Y., Hope, A., & Wang, J. (2018). Review of studies on the public-private partnerships (PPP) for infrastructure projects. International Journal of Project Management, 36(5), 773–794. https://doi.org/10.1016/j.ijproman.2018.03.004
de Albornoz, V. A. C., & Soliño, A. S. (2014). Is there room for a PPP secondary market? Financial analysis of the PPP transport sector. Journal of Management in Engineering, 31(5), 04014084. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000327
Fehr, E., & Schmidt, K. (1999). A theory of fairness, competition and cooperation. Quarterly Journal of Economics, 114, 817–868. https://doi.org/10.1162/003355399556151
Guo, T., & Wang, J. J. (2011). A study of the owner’s commission model and incentive contract based on principal-agent relationship. Systems Engineering Procedia, 1, 399–405. https://doi.org/10.1016/j.sepro.2011.08.060
Hawas, F., & Cifuentes, A. (2017). Valuation of projects with minimum revenue guarantees: a Gaussian copula-based simulation approach. The Engineering Economist, 62(1), 90–102. https://doi.org/10.1080/0013791X.2016.1153178
Holmstrom, B., & Milgrom, P. (1987). Aggregation and linearity in the provision of intertemporal incentives. Econometrica, 55(2), 303–328. https://doi.org/10.2307/1913238
Huang, Y., Ning, Y., Zhang, T., & Fei, Y. (2015). Public acceptance of waste incineration power plants in China: comparative case studies. Habitat International, 47, 11–19. https://doi.org/10.1016/j.habitatint.2014.12.008
Jenkins-Smith, H. C., Silva, C. L., Nowlin, M. C., & deLozier, G. (2011). Reversing nuclear opposition: evolving public acceptance of a permanent nuclear waste disposal facility. Risk Analysis, 31(4), 629–644. https://doi.org/10.1111/j.1539-6924.2010.01543.x
Kathlene, L., & Martin, J. A. (1991). Enhancing citizen participation: panel designs, perspectives, and policy formation. Journal of Policy Analysis and Management, 10(1), 46–63. https://doi.org/10.2307/3325512
Keers, B. B., & van Fenema, P. C. (2018). Managing risks in public-private partnership formation projects. International Journal of Project Management, 36(6), 861–875. https://doi.org/10.1016/j.ijproman.2018.05.001
Kikuchi, R., & Gerardo, R. (2009). More than a decade of conflict between hazardous waste management and public resistance: a case study of NIMBY syndrome in Souselas (Portugal). Journal of Hazardous Materials, 172(2-3), 1681–1685. https://doi.org/10.1016/j.jhazmat.2009.07.062
Kim, B., Lim, H., Kim, H., & Hong, T. (2011). Determining the value of governmental subsidies for the installation of clean energy systems using real options. Journal of Construction Engineering and Management, 138(3), 422–430.
https://doi.org/10.1061/(ASCE)CO.1943-7862.0000443
Lang, G., & Xu, Y. (2013). Anti-incinerator campaigns and the evolution of protest politics in China. Environmental Politics, 22(5), 832–848. https://doi.org/10.1080/09644016.2013.765684
Laurian, L., & Shaw, M. M. (2008). Evaluation of public participation: the practices of certified planners. Journal of Planning Education and Research, 28(3), 293–309. https://doi.org/10.1177/0739456X08326532
Levine, P., Fung, A., & Gastil, J. (2005). Future directions for public deliberation. In J. Gastil, & P. Levine (Eds.), The deliberative democracy handbook: strategies for effective civic engagement in the twenty-first century. Jossey-Bass. https://digital.lib.washington.edu/researchworks/bitstream/handle/1773/15533/Levine1.pdf?sequence=1
Li, B., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). The allocation of risk in PPP/PFI construction projects in the UK. International Journal of Project Management, 23(1), 25–35. https://doi.org/10.1016/j.ijproman.2004.04.006
Li, T. H. Y., Ng, S. T., & Skitmore, M. (2012). Public participation in infrastructure and construction projects in China: from an EIA-based to a whole-cycle process. Habitat International, 36, 47–56. https://doi.org/10.1016/j.habitatint.2011.05.006
Liu, J., Gao, R., Cheah, C. Y., & Luo, J. (2016). Incentive mechanism for inhibiting investors’ opportunistic behavior in PPP projects. International Journal of Project Management, 34(7), 1102–1111. https://doi.org/10.1016/j.ijproman.2016.05.013
Lohmann, C., & Rötzel, P. G. (2014). Opportunistic behavior in renegotiations between public-private partnerships and government institutions: data on public-private partnerships of the German armed forces. International Public Management Journal, 17(3), 387–410. https://doi.org/10.1080/10967494.2014.935245
Ma, L., & Zhang, P. (2014). Game analysis on moral hazard of construction project managers in China. International Journal of Civil Engineering, 12(4), 429–438. http://ijce.iust.ac.ir/files/site1/user_files_6k93w6/eng/lima788-A-10-2130-1-41f8d8f.pdf
Muller, R., & Turner, J. R. (2005). The impact of principal-agent relationship and contract type on communication between project owner and manager. International Journal of Project Management, 23(5), 398–403. https://doi.org/10.1016/j.ijproman.2005.03.001
Neshkova, M. I., & Guo, H. (2012). Public participation and organizational performance: evidence from state agencies. Journal of Public Administration Research and Theory, 22(2), 267–288. https://doi.org/10.1093/jopart/mur038
Ni, A. Y. (2012). The risk-averting game of transport public-private partnership: lessons from the adventure of California’s state route 91 express lanes. Public Performance and Management Review, 36(2), 253–274. https://doi.org/10.2753/PMR1530-9576360205
Percoco, M. (2014). Quality of institutions and private participation in transport infrastructure investment: evidence from developing countries. Transportation Research Part A: Policy and Practice, 70, 50–58. https://doi.org/10.1016/j.tra.2014.10.004
Quick, K. S., & Feldman, M. S. (2011). Distinguishing participation and inclusion. Journal of Planning Education and Research, 31(3), 272–290. https://doi.org/10.1177/0739456X11410979
Robinson, H. S., & Scott, J. (2009). Service delivery and performance monitoring in PFI/PPP projects. Construction Management and Economics, 27(2), 181–197. https://doi.org/10.1080/01446190802614163
Shan, C., & Yai, T. (2011). Public involvement requirements for infrastructure planning in China. Habitat International, 35(1), 158–166. https://doi.org/10.1016/j.habitatint.2010.06.004
Shrestha, A., Aibinu, A. A., Chan, T. K., & Chen, C. (2013). Risk allocation in public private partnerships in China’s water projects: a principal agent approach. Water Resources Management VII, 171, 85–96. https://doi.org/10.2495/WRM130081
Takano, G. (2017). Public-Private Partnerships as rent-seeking opportunities: a case study on an unsolicited proposal in Lima, Peru. Utilities Policy, 48, 184–194. https://doi.org/10.1016/j.jup.2017.08.005
Tam, C. M., Zeng, S. X., & Tong, T. K. (2009). Conflict analysis in public engagement program of urban planning in Hong Kong. Journal of Urban Planning and Development, 135(2), 51–55. https://doi.org/10.1061/(ASCE)0733-9488(2009)135:2(51)
Tang, J., & Wang, Y. (2013). Analysis of psychological Game model based on reciprocal behavior. Systems Engineering, 31(5), 79–84. http://en.cnki.com.cn/Article_en/CJFDTotal-GCXT201305013.htm
Teo, M. M. M., & Loosemore, M. (2014). The role of core protest group members in sustaining protest against controversial construction and engineering projects. Habitat International, 44, 41–49. https://doi.org/10.1016/j.habitatint.2014.04.005
Torvinen, H., & Ulkuniemi, P. (2016). End-user engagement within innovative public procurement practices: a case study on public-private partnership procurement. Industrial Marketing Management, 58, 58–68. https://doi.org/10.1016/j.indmarman.2016.05.015
Wang, Y., Cui, P., & Liu, J. (2018). Analysis of the risk-sharing ratio in PPP projects based on government minimum revenue guarantees. International Journal of Project Management, 36(6), 899–909. https://doi.org/10.1016/j.ijproman.2018.01.007
Wang, Y. L., & Liu, J. C. (2015). Evaluation of the excess revenue sharing ratio in PPP projects using principal-agent models. International Journal of Project Management, 36(6), 1317–1324. https://doi.org/10.1016/j.ijproman.2015.03.002
Xie, L. L., Xia, B., Hu, Y., Shan, M., Le, Y., & Chan, A. P. (2017). Public participation performance in public construction projects of South China: a case study of the Guangzhou Games venues construction. International Journal of Project Management, 35(7), 1391–1401. https://doi.org/10.1016/j.ijproman.2017.04.003
Xie, L. L., Yang, Y., Hu, Y., & Chan, A. P. C. (2014). Understanding project stakeholders’ perceptions of public participation in china’s infrastructure and construction projects: social effects, benefits, forms, and barriers. Engineering, Construction and Architectural Management, 21(2), 224–240. https://doi.org/10.1108/ECAM-12-2012-0115
Boyer, E. J., Van Slyke, D. M., & Rogers, J. D. (2016). An empirical examination of public involvement in public-private partnerships: qualifying the benefits of public involvement in PPPs. Journal of Public Administration Research and Theory, 26(1), 45–61. https://academic.oup.com/jpart/articleabstract/26/1/45/2614457
Brabham, D. C. (2010). Crowdsourcing: a model for leveraging online communities. In A. Delwiche, & J. J. Henderson (Eds.), The participatory cultures handbook (pp. 120–129). Routledge.
Brandts, J., & Schram, A. (2001). Cooperation and noise in public goods experiments: applying the contribution function approach. Journal of Public Economic, 79(2), 399–427.
https://doi.org/10.1016/S0047-2727(99)00120-6
Buyukyoran, F., & Gundes, S. (2018). Optimized real optionsbased approach for government guarantees in PPP toll road projects. Construction Management and Economics, 36(4), 203–216. https://doi.org/10.1080/01446193.2017.1347267
Cui, C., Liu, Y., Hope, A., & Wang, J. (2018). Review of studies on the public-private partnerships (PPP) for infrastructure projects. International Journal of Project Management, 36(5), 773–794. https://doi.org/10.1016/j.ijproman.2018.03.004
de Albornoz, V. A. C., & Soliño, A. S. (2014). Is there room for a PPP secondary market? Financial analysis of the PPP transport sector. Journal of Management in Engineering, 31(5), 04014084. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000327
Fehr, E., & Schmidt, K. (1999). A theory of fairness, competition and cooperation. Quarterly Journal of Economics, 114, 817–868. https://doi.org/10.1162/003355399556151
Guo, T., & Wang, J. J. (2011). A study of the owner’s commission model and incentive contract based on principal-agent relationship. Systems Engineering Procedia, 1, 399–405. https://doi.org/10.1016/j.sepro.2011.08.060
Hawas, F., & Cifuentes, A. (2017). Valuation of projects with minimum revenue guarantees: a Gaussian copula-based simulation approach. The Engineering Economist, 62(1), 90–102. https://doi.org/10.1080/0013791X.2016.1153178
Holmstrom, B., & Milgrom, P. (1987). Aggregation and linearity in the provision of intertemporal incentives. Econometrica, 55(2), 303–328. https://doi.org/10.2307/1913238
Huang, Y., Ning, Y., Zhang, T., & Fei, Y. (2015). Public acceptance of waste incineration power plants in China: comparative case studies. Habitat International, 47, 11–19. https://doi.org/10.1016/j.habitatint.2014.12.008
Jenkins-Smith, H. C., Silva, C. L., Nowlin, M. C., & deLozier, G. (2011). Reversing nuclear opposition: evolving public acceptance of a permanent nuclear waste disposal facility. Risk Analysis, 31(4), 629–644. https://doi.org/10.1111/j.1539-6924.2010.01543.x
Kathlene, L., & Martin, J. A. (1991). Enhancing citizen participation: panel designs, perspectives, and policy formation. Journal of Policy Analysis and Management, 10(1), 46–63. https://doi.org/10.2307/3325512
Keers, B. B., & van Fenema, P. C. (2018). Managing risks in public-private partnership formation projects. International Journal of Project Management, 36(6), 861–875. https://doi.org/10.1016/j.ijproman.2018.05.001
Kikuchi, R., & Gerardo, R. (2009). More than a decade of conflict between hazardous waste management and public resistance: a case study of NIMBY syndrome in Souselas (Portugal). Journal of Hazardous Materials, 172(2-3), 1681–1685. https://doi.org/10.1016/j.jhazmat.2009.07.062
Kim, B., Lim, H., Kim, H., & Hong, T. (2011). Determining the value of governmental subsidies for the installation of clean energy systems using real options. Journal of Construction Engineering and Management, 138(3), 422–430.
https://doi.org/10.1061/(ASCE)CO.1943-7862.0000443
Lang, G., & Xu, Y. (2013). Anti-incinerator campaigns and the evolution of protest politics in China. Environmental Politics, 22(5), 832–848. https://doi.org/10.1080/09644016.2013.765684
Laurian, L., & Shaw, M. M. (2008). Evaluation of public participation: the practices of certified planners. Journal of Planning Education and Research, 28(3), 293–309. https://doi.org/10.1177/0739456X08326532
Levine, P., Fung, A., & Gastil, J. (2005). Future directions for public deliberation. In J. Gastil, & P. Levine (Eds.), The deliberative democracy handbook: strategies for effective civic engagement in the twenty-first century. Jossey-Bass. https://digital.lib.washington.edu/researchworks/bitstream/handle/1773/15533/Levine1.pdf?sequence=1
Li, B., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). The allocation of risk in PPP/PFI construction projects in the UK. International Journal of Project Management, 23(1), 25–35. https://doi.org/10.1016/j.ijproman.2004.04.006
Li, T. H. Y., Ng, S. T., & Skitmore, M. (2012). Public participation in infrastructure and construction projects in China: from an EIA-based to a whole-cycle process. Habitat International, 36, 47–56. https://doi.org/10.1016/j.habitatint.2011.05.006
Liu, J., Gao, R., Cheah, C. Y., & Luo, J. (2016). Incentive mechanism for inhibiting investors’ opportunistic behavior in PPP projects. International Journal of Project Management, 34(7), 1102–1111. https://doi.org/10.1016/j.ijproman.2016.05.013
Lohmann, C., & Rötzel, P. G. (2014). Opportunistic behavior in renegotiations between public-private partnerships and government institutions: data on public-private partnerships of the German armed forces. International Public Management Journal, 17(3), 387–410. https://doi.org/10.1080/10967494.2014.935245
Ma, L., & Zhang, P. (2014). Game analysis on moral hazard of construction project managers in China. International Journal of Civil Engineering, 12(4), 429–438. http://ijce.iust.ac.ir/files/site1/user_files_6k93w6/eng/lima788-A-10-2130-1-41f8d8f.pdf
Muller, R., & Turner, J. R. (2005). The impact of principal-agent relationship and contract type on communication between project owner and manager. International Journal of Project Management, 23(5), 398–403. https://doi.org/10.1016/j.ijproman.2005.03.001
Neshkova, M. I., & Guo, H. (2012). Public participation and organizational performance: evidence from state agencies. Journal of Public Administration Research and Theory, 22(2), 267–288. https://doi.org/10.1093/jopart/mur038
Ni, A. Y. (2012). The risk-averting game of transport public-private partnership: lessons from the adventure of California’s state route 91 express lanes. Public Performance and Management Review, 36(2), 253–274. https://doi.org/10.2753/PMR1530-9576360205
Percoco, M. (2014). Quality of institutions and private participation in transport infrastructure investment: evidence from developing countries. Transportation Research Part A: Policy and Practice, 70, 50–58. https://doi.org/10.1016/j.tra.2014.10.004
Quick, K. S., & Feldman, M. S. (2011). Distinguishing participation and inclusion. Journal of Planning Education and Research, 31(3), 272–290. https://doi.org/10.1177/0739456X11410979
Robinson, H. S., & Scott, J. (2009). Service delivery and performance monitoring in PFI/PPP projects. Construction Management and Economics, 27(2), 181–197. https://doi.org/10.1080/01446190802614163
Shan, C., & Yai, T. (2011). Public involvement requirements for infrastructure planning in China. Habitat International, 35(1), 158–166. https://doi.org/10.1016/j.habitatint.2010.06.004
Shrestha, A., Aibinu, A. A., Chan, T. K., & Chen, C. (2013). Risk allocation in public private partnerships in China’s water projects: a principal agent approach. Water Resources Management VII, 171, 85–96. https://doi.org/10.2495/WRM130081
Takano, G. (2017). Public-Private Partnerships as rent-seeking opportunities: a case study on an unsolicited proposal in Lima, Peru. Utilities Policy, 48, 184–194. https://doi.org/10.1016/j.jup.2017.08.005
Tam, C. M., Zeng, S. X., & Tong, T. K. (2009). Conflict analysis in public engagement program of urban planning in Hong Kong. Journal of Urban Planning and Development, 135(2), 51–55. https://doi.org/10.1061/(ASCE)0733-9488(2009)135:2(51)
Tang, J., & Wang, Y. (2013). Analysis of psychological Game model based on reciprocal behavior. Systems Engineering, 31(5), 79–84. http://en.cnki.com.cn/Article_en/CJFDTotal-GCXT201305013.htm
Teo, M. M. M., & Loosemore, M. (2014). The role of core protest group members in sustaining protest against controversial construction and engineering projects. Habitat International, 44, 41–49. https://doi.org/10.1016/j.habitatint.2014.04.005
Torvinen, H., & Ulkuniemi, P. (2016). End-user engagement within innovative public procurement practices: a case study on public-private partnership procurement. Industrial Marketing Management, 58, 58–68. https://doi.org/10.1016/j.indmarman.2016.05.015
Wang, Y., Cui, P., & Liu, J. (2018). Analysis of the risk-sharing ratio in PPP projects based on government minimum revenue guarantees. International Journal of Project Management, 36(6), 899–909. https://doi.org/10.1016/j.ijproman.2018.01.007
Wang, Y. L., & Liu, J. C. (2015). Evaluation of the excess revenue sharing ratio in PPP projects using principal-agent models. International Journal of Project Management, 36(6), 1317–1324. https://doi.org/10.1016/j.ijproman.2015.03.002
Xie, L. L., Xia, B., Hu, Y., Shan, M., Le, Y., & Chan, A. P. (2017). Public participation performance in public construction projects of South China: a case study of the Guangzhou Games venues construction. International Journal of Project Management, 35(7), 1391–1401. https://doi.org/10.1016/j.ijproman.2017.04.003
Xie, L. L., Yang, Y., Hu, Y., & Chan, A. P. C. (2014). Understanding project stakeholders’ perceptions of public participation in china’s infrastructure and construction projects: social effects, benefits, forms, and barriers. Engineering, Construction and Architectural Management, 21(2), 224–240. https://doi.org/10.1108/ECAM-12-2012-0115