Delivery of private toll roads: Incentive strategies for improving service quality and social welfare

Abstract

Managing the service quality of toll roads delivered by using Public-Private Partnerships (PPPs) to ensure value for money to taxpayers is challenging for governments worldwide. An absence of critical research in this area has exacerbated this challenge. The upshot, in this instance, has been an inability for governments to engender and enact effective incentive strategies to operate and maintain private toll roads. To fill this gap, this paper aims to identify and examine incentive strategies for improving the operational quality of toll roads delivered by private entities. We develop a game model with four scenarios and then compare relevant decision behaviour and social welfare. The analysis reveals that only when the shadow cost of public funds is below a specific threshold there can be a feasible incentive strategy for ensuring quality improvement and higher social welfare. Furthermore, an incentive contract with a predetermined quality can enable a higher operational quality while requiring a higher incentive intensity. The contributions of this research are twofold: (1) we propose an enhanced model that is useful for governments to examine the impacts that different incentive strategies will have on the performance of transport projects; (2) we give an enhanced insight to support decision-making for incentives towards transport asset operations. This research will also be beneficial for governments in enhancing toll roads’ operational quality and social welfare for taxpayers.