Renegotiation In Infrastructure Concession Contract

Infrastructure concession in developed countries has a history of hundreds of years. Then it was extended to the application in developing countries.Compared to be operated by government departments with inefficiency on public service, Infrastructure concession has huge advantage. Concession system arrangement is not only able to provide infrastructure efficiently and professionally,= but also lighten the government’s fund pressure. Especially in developing countries, it’s unlikely to solve money problems counting on the government only, because large amount of capital is needed. Therefore, our country also introduced the mode to speed up the construction of infrastructure. Concession contracts are usually incomplete, because of people’s limited rationality and the complexity of the environment of the infrastructure concession. Renegotiation is inevitable. It should be a way to make up the incompleteness of the contract, so the level of social welfare would be improved. In fact, renegotiation will usually have a negative impact to the society, because of the default of the government and the opportunism behaviors of the enterprise during the renegotiation process, leading to unsustainable cooperation. Usually, the government has stronger position than enterprise. The existence of executive privilege allows the government to cancel or modify the contract unilaterally without any loss, so the government has a default motive, which will damage the interests of the enterprise, and reduce the investment enthusiasm of private sector. It is not a sustainable management of infrastructure. While the government’s poor regulation and the information asymmetry allows the enterprise’s opportunistic behavior. The enterprise will apply high subsidies or other preferential policies which do not conform to the enterprise operation state, damaging the interest of government and the public. This will also affect the sustainable management of infrastructure. Therefore, this paper uses game theory analysis on strategy in renegotiation between the government and the enterprise, tying to solve the problem that the renegotiation result is not ideal and the management of infrastructure is not sustainable.Based on the above, this paper tries to use game theory as a tool to analyze the mutual decision. Prove the fact that improving the degree of attention to the long-term interests of both sides can prevent the opportunism behavior of enterprise effectively, improve cooperation degree, improve the welfare effect, achieve sustainable infrastructure management and the sustainable development of the infrastructure industry, then improve the welfare level.To improve the cooperation degree and the efficiency of concession contract renegotiation of infrastructure, this paper mainly constructs a game model to analyze the behavior of both sides before and after the renegotiation process. Then find out the key point which will affect the choice of both sides. At the same time, prove the correctness by case study. This paper will be divided into five parts:The first part is the introduction, introduces the research background and the significance of this paper briefly. And both at home and abroad research about the infrastructure concession contract renegotiation were reviewed. Then illustrate the the methods and ideas of the research as well as the difficulty, contribution and deficiency.The second part is an overview of the concession contract renegotiation.Mainly explain related concepts, also introduces the key factors affecting concession contract renegotiation, the way and the process of the renegotiation. Have a preliminary introduction to renegotiation.The third part is the highlight of the paper. Mainly constructs game models to analyze whether the enterprise will choose to renegotiate and the behavior of both sides during the renegotiation process. Draw the conclusion that patience is the important factor affecting the bilateral cooperation.The fourth part is the further illustration for conclusion in the third part. This section introduces two cases about the renegotiation of concession contract. In the first case, both sides ground on the long-term cooperation, the renegotiation eventually improve the welfare effect of the government, the enterprise and the consumer. And sustainable management of infrastructure is achieved. In the second case, the government break the clause and the enterprise choose to behave opportunism. The renegotiation wasted lots of monde and resources, and also damage the interests of the franchise enterprises.The fifth part is on the basis of the above. This section makes related policy recommendations, and gives the specific practices, result in the improvement of the efficiency of the renegotiation and cooperation, and the sustainable management of infrastructure.