Decision Makings Of Excess Profit Allocation And Subsidy For Profit Shortage For Transportation PPP Projects

As a major innovation for the delivery of public infrastructure projects and services,Public-Private Partnership(PPP)model has been widely promoted and applied in the transportation industry around the world.Inherently characterized by large-scale investments and long repayment periods,transportation PPP projects are subjected to high and multi-dimensional risks arising from various uncertainties.In practice,many transportation projects delivered via PPPs have encountered excessive profit or financial distress,attributed to uncertainties in traffic demands,road deterioration,and high cost overrun.However,due to the lack of effective and fair profit risk-sharing method,it may damage the general public's interest,lead to high-profit risks for the private sector or bump up the financial burden for the government entity.Therefore,how to improve the accuracy of profit forecast for PPP projects and how to scientifically and rationally design the profit adjustment mechanism have a significant theoretical and practical research value.Firstly,by analyzing the critical influencing factors of profit for transportation PPP projects,the interactions among various factors such as traffic demand,toll price,pavement condition,road roughness related to maintenance&rehabilitation(M&R)activities are discussed.Based on this,the profit prediction model for transportation PPP projects is proposed using a mathematical modeling method.With taking the probability distribution fitting of uncertain factors into consideration,the expected profit of the transportation PPP projects is determined based on the cumulative probability by using the Monte Carlo simulation.This lays the foundation for profit adjustment mechanism.The proposed model is verified using SH 130,a PPP toll road in Texas,where sensitivity analysis is also conducted to illustrate the impact of different risk factors on expected profit.Secondly,under the condition of excess profit,traffic volume is the most critical influencing factor of project profit.Because of its uncertainty;profit can be adjusted accordingly.Therefore,profit adjustment mechanism has the nature of options.The Black-Scholes(B-S)pricing method is used to determine the profit upper threshold,and a dynamic model is proposed to determine the excess profit allocation proportion considering the consumer surplus rate and the profit upper threshold.The proposed models are illustrated by a numerical example,and the dynamic allocation method is compared with average allocation,stepwise allocation and no allocation methods.Finally,under the condition of profit shortage,by applying the principal-agent incentive theory to an optimal decision-making model for the government and the private sector,the private sector's optimal M&R activities and the optimal toll price are determined.Based on this,considering the actual level of M&R activities carried out by the private sector,an incentive decision model is conducted to design the government subsidy.By setting the optimal M&R activities and actual M&R activities as the indicators to measure the private sector's effort coefficient,the relationship between the effort coefficient and subsidy coefficient is analyzed.The proposed models are illustrated by a numerical example,and subsidy coefficients under different effort levels are simulated and analyzed.This paper focuses on profit adjustment mechanism,which is the essential issue of the operation of transportation PPP projects.It aims to provide decision-making references for the government and the private sector to carry out reasonable and fair excess profit allocation and subsidy mechanism for profit shortage.