Strategic Interaction Between the Government and the Private Sector in PPP Projects Incorporating the Fairness Preference

Jiaojie Han,Manzuo Jia,Guangdong Wu,Huilin Yang

doi:10.1109/access.2020.2975821

Jiaojie Han, Manzuo Jia + Show 2 more

Open Access

https://doi.org/10.1109/access.2020.2975821

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Abstract

Due to factors including project uncertainties, contract incompleteness, and imperfect supervision systems, relying solely on contracts and supervision cannot effectively reduce opportunistic behavior in public-private partnership (PPP) projects. This study complements the existing literature by investigating the behavioral motivations behind strategic choices, an additional critical factor impacting the effectiveness and implementation of PPP contracts and supervision. Incorporating the fairness preference, this study applies an indirect evolutionary game theoretical approach to model the strategic interaction between the government and the private sector in a PPP project. Through the game theoretical and simulation analysis, possible evolutionary stable strategies (ESS) are predicted between the government and the private sector. The results indicate that the ESS highly depends on the private sector's fairness preference. Private sector entities with weak fairness preferences tend not to behave opportunistically, while those with strong fairness preferences tend to be opportunistic. Moreover, the government adopts a supervision strategy for private sector entities with strong fairness preferences when the supervision cost is lower than the supervision benefit. These findings offer new insights for reducing opportunistic behavior and improving project performance in the context of PPP projects.

Highlights

Opportunistic behavior is defined as a ‘‘behavior by a contractor that is motivated to pursue its self-interest with deceit to achieve gains at the expense of the owner’’ [8], [25]
The results show that the fairness preference of the private sector is one of the key factors determining the choice of strategies by both the government and the private sector
The contributions of this study are twofold: Firstly, using indirect evolutionary game theory, this study explores the evolution of the long-term strategic interaction between the government and the private sector in a private partnership (PPP) project

Summary

INTRODUCTION

Opportunistic behavior is defined as a ‘‘behavior by a contractor that is motivated to pursue its self-interest with deceit to achieve gains at the expense of the owner’’ [8], [25]. It is necessary to investigate the process by which both the government and private sector make behavioral strategic choices in PPP projects so as to reduce opportunistic behaviors and improve the cooperative relationship between the two parties From this perspective, some literature discusses the long-term behavioral trends of both the private sector and the government by using the standard evolutionary game theory [14], [20], [23], [35], which is mainly based on the assumption that the entities are completely rational (material payoff maximizers). In order to examine how the government and private sector choose their strategies in PPP projects, as well as how the private sector’s fairness preference affects their strategic choices, this study makes the following assumptions. Contrary to the result of the pure strategy of the private sector, under no conditions would supervision be the only choice for the government, regardless of the private sector’s strategies

EVOLUTIONARY STABILITY ANALYSIS OF MIXED

CONCLUSIONS AND PRACTICAL IMPLICATIONS