Concession model for fair distribution of benefits and risks in build-operate-transfer road projects

    Xue Yan Affiliation
    ; Heap-Yih Chong Affiliation
    ; Jing Zhou Affiliation
    ; Qian Li Affiliation


A fair distribution of benefits and risks is not only one of the key factors in deciding concession period but also an important prerequisite for good cooperation between the government and the private sector in a Build-Operate-Transfer (BOT) road project. Considering the psychological characteristic of decision makers’ fairness preference, this study innovatively introduces the inequity aversion theory into the concession model, which provides a novel perspective to investigate the distribution of benefits and risks. In the improved model, the decision makers’ investment utility involves their economic benefits as well as their disutility due to inequity. Furthermore, the equilibrium principle of benefits and risks in this model has changed to minimize the gap between the investment utility-risk ratios of the government and the private sector. Based on Monte Carlo simulation, this study verifies the application of the model to a BOT road project in China. The results show that the concession period with fairness preference can effectively narrow the gap between the investment utility-risk ratios of the government and the private sector, thus guaranteeing the fair distribution of benefits and risks in the BOT road project.

Keyword : concession period, fairness preferences, inequity aversion theory, investment utility-risk ratio, Monte Carlo simulation

How to Cite
Yan, X., Chong, H.-Y., Zhou, J., & Li, Q. (2019). Concession model for fair distribution of benefits and risks in build-operate-transfer road projects. Journal of Civil Engineering and Management, 25(3), 265-275.
Published in Issue
Mar 13, 2019
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Alexander, I., Estache, A., & Oliveri, A. (2000). A few things transport regulators should know about risk and the cost of capital. Utilities Policy, 9, 1-13.

Bao, H., Peng, Y., Ablanedo-Rosas, J. H., & Gao, H. (2015). An alternative incomplete information bargaining model for identifying the reasonable concession period of a BOT project. International Journal of Project Management, 33, 1151-1159.

Bao, H., & Wang, H. (2010). A determining model on total investment, project life, and concession period interval for BOT projects. In IEEE 5th International Conference on Computer Sciences and Convergence Information Technology (ICCIT) (pp. 781-785). Seoul, Korea.

Bing, L., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). The allocation of risk in PPP/PFI construction projects in the UK. International Journal of Project Management, 23, 25-35.

Carbonara, N., Costantino, N., & Pellegrino, R. (2014). Concession period for PPPs: A win-win model for a fair risk sharing. International Journal of Project Management, 32, 1223-1232.

Cao, Q., Sheng, Z., Zhou, J., Liu, H., & Li, Q. (2014). Motivation and supervision mechanism of agent construction system for government investment projects based on fairness theory. China Soft Science, 10, 144-153 (in Chinese).

Cruz, C. O., & Marques, R. C. (2013). Flexible contracts to cope with uncertainty in public–private partnerships. International Journal of Project Management, 31, 473-483.

Davidson, C., Matusz, S., & Nelson, D. (2006). Fairness and the political economy of trade. The World Economy, 29, 989-1004.

Damodaran, A. (2009). Equity Risk Premiums (ERP): Determinants, estimation and implications – A post crisis update. Financial Markets, Institutions & Instruments, 18(5), 289-370.

Engel, E. M., Fischer, R. D., & Galetovic, A. (2001). Least-present-value-of-revenue auctions and highway franchising. Journal of Political Economy, 109, 993-1020.

EPEC. (2011). The non-financial benefits of PPPs – A review of concepts and methodology. European PPP Expertise Centre.

Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. The Quarterly Journal of Economics, 114, 817-868.

Fehr, E., & Schmidt, K. M. (2006). The economics of fairness, reciprocity and altruism – experimental evidence and new theories. In Handbook of the economics of giving, altruism and reciprocity (Vol. 1, pp. 615-691).

Feng, K., Wang, S., Li, N., Chunlin, W. U., & Xiong, W. (2018). Balancing public and private interests through optimization of concession agreement design for user-pay PPP projects. Journal of Civil Engineering & Management, 24(2), 116-129.

Fisher, I. (1930). The theory of interest as determined by impatience to spend income and opportunity to invest it. New York: A. M. Kelley.

Frazier, G. L. (1983). Interorganizational exchange behavior in marketing channels: A broadened perspective. Journal of Marketing, 47, 68-78.

Garvin, M. J., & Cheah, C. Y. J. (2004). Valuation techniques for infrastructure investment decisions. Construction Management & Economics, 22, 373-383.

Hanaoka, S., & Palapus, H. P. (2012). Reasonable concession period for build-operate-transfer road projects in the Philippines. International Journal of Project Management, 30, 938-949.

Iyer, K. C., & Sagheer, M. (2011). A real options based traffic risk mitigation model for build-operate-transfer highway projects in India. Construction Management & Economics, 29, 771-779.

Jamali, D. (2004). Success and failure mechanisms of public private partnerships (PPPs) in developing countries: Insights from the Lebanese context. International Journal of Public Sector Management, 17(5), 414-430.

Jun, J. (2010). Appraisal of combined agreements in BOT project finance: focused on minimum revenue guarantee and revenue cap agreements. International Journal of Strategic Property Management, 14(2), 139-155.

Ke, Y., Wang, S., & Chan, A. P. C. (2012). Risk management practice in China,s Public-Private Partnership projects. Journal of Civil Engineering and Management, 18(5), 675-684.

Lü, X., Scheve, K., & Slaughter, M. J. (2012). Inequity aversion and the international distribution of trade protection. American Journal of Political Science, 56, 638-654.

Li, B. (2003). Risk management of construction public private partnership projects. Glasgow: Glasgow Caledonian University.

Liou, F.-M., & Huang, C.-P. (2008). Automated approach to negotiations of BOT contracts with the consideration of project risk. Journal of Construction Engineering and Management, 134, 18-24.

Luebker, M. (2014). Income inequality, redistribution, and poverty: Contrasting rational choice and behavioral perspectives. Review of Income and Wealth, 60, 133-154.

Lv, J., Ye, G., Liu, W., Shen, L., & Wang, H. (2014). Alternative model for determining the optimal concession period in Managing BOT transportation projects. Journal of Management in Engineering, 31, 04014066.

Macneil, I. R. (1980). The new social contract: An inquiry into modern contractual relations. Yale University Press.

Mills, G. (1995). Welfare and profit divergence for a tolled link in a road network. Journal of Transport Economics & Policy, 29, 137-146.

Ng, A., & Loosemore, M. (2007). Risk allocation in the private provision of public infrastructure. International Journal of Project Management, 25, 66-76.

Ng, S. T., Xie, J., Cheung, Y. K., & Jefferies, M. (2007a). A simulation model for optimizing the concession period of public–private partnerships schemes. International Journal of Project Management, 25, 791-798.

Ng, S. T., Xie, J., Skitmore, M., & Cheung, Y. K. (2007b). A fuzzy simulation model for evaluating the concession items of public–private partnership schemes. Automation in Construction, 17, 22-29.

Rohde, K. I. (2010). A preference foundation for Fehr and Schmidt’s model of inequity aversion. Social Choice and Welfare, 34, 537-547.

Roumboutsos, A., & Anagnostopoulos, K. P. (2008). Public-private partnership projects in Greece: risk ranking and preferred risk allocation. Construction Management and Economics, 26, 751-763.

Saha, P., & Ksaibati, K. (2015). A risk-based optimization methodology for managing county paved roads. In The 94th Transportation Research Board Annual Meeting. Retrieved from

Samuelson, L. (1993). Recent advances in evolutionary economics: comments. Economics Letters, 42, 313-319.

Scharle, P. (2002). Public-private partnership (PPP) as a social game. Innovation: The European Journal of Social Science Research, 15(3), 227-252.

Sen, A. (1995). Rationality and social choice. The American Economic Review, 85(1), 1-24.

Shahrara, N., ÃElik, T., & Gandomi, A. H. (2017). Risk analysis of BOT contracts using soft computing. Journal of Civil Engineering and Management, 23(2), 232-240.

Shen, L., Li, H., & Li, Q. (2002). Alternative concession model for build operate transfer contract projects. Journal of Construction Engineering and Management, 128, 326-330.

Shen, L., & Wu, Y. (2005). Risk concession model for build/operate/transfer contract projects. Journal of Construction Engineering and Management, 131, 211-220.

Shen, L., Bao, H., Wu, Y., & Lu, W. (2007). Using bargaining-game theory for negotiating concession period for BOT-type contract. Journal of Construction Engineering and Management, 133, 385-392.

Simon, H. A. (2013). Administrative behavior. Simon and Schuster.

Song, B. (2011). Analysis on the pricing mechanism of public-private partnership project with different market demand level. Journal of Management Sciences in China.

Štritof, I., Gelo, T., & Krajcar, S. (2009). Possible impact of global financial crisis on prices in Croatian electricity sector. WSEAS Transactions on Power Systems, 4(7), 242-251.

Tang, J., & Wang, Y. (2013). Analysis of psychological game model based on reciprocal behavior. Systems Engineering, 31(5), 83-88.

Tiong, R. L. (1990). BOT projects: Risks and securities. Construction Management and Economics, 8, 315-328.

Villamejor-Mendoza, M. (2011). Equity and fairness in public-private partnerships: the case of airport infrastructure development in the Philippines. Retrieved from

Wang, N., Chang, Y.-C., & El-Sheikh, A. A. (2012). Monte Carlo simulation approach to life cycle cost management. Structure and Infrastructure Engineering, 8, 739-746.

Wang, Y., Cui, P., & Liu, J. (2018). Analysis of the risk-sharing ratio in PPP projects based on government minimum revenue guarantees. International Journal of Project Management, 36(6), 899-909.

Wang, Y., & Liu, J. (2015). Evaluation of the excess revenue sharing ratio in PPP projects using principal-agent models. International Journal of Project Management, 33, 1317-1324.

Wibowo, A., & Alfen, H. W. (2013). Fine-tuning the value and cost of capital of risky PPP infrastructure projects. Engineering, Construction and Architectural Management, 20, 406-419.

Wu, X., Jing, Z., & Wei, H. (2011). Decision-making model on BOT project’s concession period based on an efficient operational period. Journal of Systems Engineering, 26, 373-378.

Wu, X., Peng, Y., Liu, X., & Zhou, J. (2018). Validity of generalized compensation contract for PPP project with consideration of private fair reference depending on concession profit. China Finance Review International, 8(1), 43-68.

Ye, S., & Tiong, R. L. (2000). NPV-at-risk method in infrastructure project investment evaluation. Journal of Construction Engineering and Management, 126, 227-233.

Yu, C., & Lam, K. C. (2013). A decision support system for the determination of concession period length in transportation project under BOT contract. Automation in Construction, 31, 114-127.

Zhang, X., & AbouRizk, S. M. (2006). Determining a reasonable concession period for private sector provision of public works and service. Canadian Journal of Civil Engineering, 33, 622-631.

Zhang, Y., Feng, Z., & Zhang, S. (2018). The effects of concession period structures on BOT road contracts. Transportation Research Part A: Policy and Practice, 107, 106-125.

Zhang, Z., & Jia, M. (2010). Procedural fairness and cooperation in public-private partnerships in China. Journal of Managerial Psychology, 25(5), 513-538.

Zhang, J., Xu, J., & Liu, J. (2011). Game analysis on fairness of concession period of Build Operate Transfer contract project. Urban Studies, 6, 017.