A strategic model of public-private partnerships in transportation: Effect of taxes and cost structure on investment viability

The authors formulate a game-theoretic model of a concession agreement between a government and a private party, a concessionaire, who has to engage a set of service providers as part of the operating responsibilities. The authors use the model to examine the importance of a government's tax policy to induce private investments in transportation infrastructure. The analysis brings to fore insights that are useful in the design of partnership agreements, such as the importance of early and binding government commitments to ensure stable partnerships, and thus, successful projects. The analysis shows that these strong commitments are even more critical in situations where the success of the partnership requires participation of additional, self-interested parties, such as specialized service providers. Finally, the authors consider variations of the model where government preferences are explicitly captured, and where the returns from the fixed cost portion of the concessionaire's investment are exempt from taxes. The authors show that both variations can lead to outcomes where the concessionaire's tax burden is shifted to the service providers. This flexibility can be critical in the design of partnership agreements for (high-risk or highly specialized transportation) projects where additional incentives may be needed to induce private party participation.


  • English

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  • Accession Number: 01450023
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Oct 23 2012 9:11AM