Public-private partnership (PPP) schemes have been widely applied in many parts of the world to deliver infrastructure projects, thus creating a partnering environment between the public and private sectors for the sharing of resources, risks, responsibilities, and rewards. However, such projects require high construction costs and a long concession period, during which many risks and uncertainties emerge. Improper governmental regulation and risk management of PPP projects may cause enormous losses for a project and reduce the perceived strengths and advantages of PPPs compared with traditional procurement approaches. Furthermore, conflicting interests and information asymmetry between the two parties in a typical PPP setting are all the more likely to lead to opportunistic behavior by...[ Read more ]

Public-private partnership (PPP) schemes have been widely applied in many parts of the world to deliver infrastructure projects, thus creating a partnering environment between the public and private sectors for the sharing of resources, risks, responsibilities, and rewards. However, such projects require high construction costs and a long concession period, during which many risks and uncertainties emerge. Improper governmental regulation and risk management of PPP projects may cause enormous losses for a project and reduce the perceived strengths and advantages of PPPs compared with traditional procurement approaches. Furthermore, conflicting interests and information asymmetry between the two parties in a typical PPP setting are all the more likely to lead to opportunistic behavior by the concessionaire, which may not be in the interest of the public and can even lead to the failure of a PPP project.

This thesis firstly describes a performance-based PPP project governance model, which integrates incentive and supervision functions based on the principal-agent theory. This model enables the determination of the ideal balance among incentive and supervision, which will motivate the concessionaire to act in the interest of the government rather than behaving opportunistically and maximize own benefit over the long-term concession period; such an approach can yield a win-win outcome for both public and private parties.

Secondly, considering the relative importance of the internal motivation of the concessionaire across different stages of a project, this thesis develops a whole-life governance model. This model analyzes the concessionaire’s behavior at every step, and the effect on the social welfare of a PPP project investigates the interaction effects between different PPP stages, and helps the government to determine a suitable incentive mechanism to decrease the occurrence of opportunistic behavior. Subsequently, a decision support system is proposed for policy implementation, based on the developed model.

Thirdly, previous literature on PPP risk management ignored the importance of insurance as a risk-transfer tool. Through comparison and evaluation of international government PPP guidelines and contracts, as well as case studies from across the world, this thesis identifies the main insurance principles and insurance types for different stages. An overall procedure is established to improve the practices in PPP projects. Furthermore, the domain of PPPs is expanded to include other kinds of interactions between a government and an insurance company. This approach can effectively address response and recovery issues in disaster management for developing countries.

Lastly, an option-theory based model on insurance premium valuation is established for the determination of how much the concessionaire will likely be willing to pay to an insurance company.