Incentive Compensation Mechanism for the Infrastructure Construction of Electric Vehicle Battery Swapping Station under Asymmetric Information

Abstract

Driven by the application and promotion of the electric vehicle battery swapping station (BSS), this paper addresses a key challenge in the BSS’s infrastructure construction, which is information asymmetry between the government and BSS. First, inspired by the insights of financial contracting, this study constructs the government’s capital allocation and compensation models for the BSS via the principal–agent approach. This paper is the first developing an incentive-compatible (IC) compensation mechanism for improving the operation of BSS in the presence of two kinds of asymmetric information (operation level and effort level). Next, this paper derives the government and BSS’s equilibrium strategies under two scenarios of symmetry and asymmetry information, respectively. Finally, this paper compares the equilibrium solutions obtained in the above two scenarios to verify the effectiveness of the allocation scheme and compensation mechanism. This paper finds that the capital allocation scheme and compensation mechanism proposed in this paper can incentivize the BSS to report its actual operation level and take the corresponding effort level. Moreover, the government and BSS’s underinvestment problems become smaller when the BSS’s operation level is relatively high. Several important managerial insights are derived based on our analytical and numerical results.