Revenue structure of the dual-role as investor-contractors in PPP project

Abstract

Purpose

The purpose of this study is to discuss the phenomenon of dual-role participants in public-private partnership (PPP) projects. Contractors who are also investors hold a dual-role that can improve project financing and technical ability. However, speculation without effort from the dual-role subjects can result in serious conflicts of interest between pure and dual-role investors. The authors considered contractors’ decisions regarding whether to invest and exert effort and discussed the distribution of interests between pure and dual-role investors based on different strategy combinations. The authors also analyzed the advantages and disadvantages of the dual-role phenomenon through the income model.

Design/methodology/approach

Based on game theory, this study constructed four types of revenue structure models for pure and dual-role investors in different decision-making choices. Then, the authors performed a comparative analysis of the dual-role participant’s income in different models.

Findings

When the contractor becomes a dual-role subject and expends significant effort (m1*), the revenue of stakeholders can be increased, which can achieve a win-win outcome. Meanwhile, the level of effort of the contractor can be guaranteed when the government or project company limits the investment proportion, rj. For a contractor, the channel of becoming a dual-role subject and expending effort is suggested for maximizing investment return.

Originality/value

The study optimized the PPP project system and investment structure and offered specific governance instruments for a PPP project company to prevent speculation by dual-role subject. Concretely, a dual-role subject was discussed in the context of PPPs; this discussion offers new insight for researchers. Four revenue models based on different contractor strategies were established, a finding that is beneficial for further improving the revenue governance of PPP projects. Finally, the study used a quantitative model to validate the advantages of the dual-role phenomenon, and the authors found that the proportion of equity can impact a dual-role investor’s effort level, thereby curbing speculation to produce a win-win outcome.

Citation

Liu, J., Liu, J. and Ruan, L. (2020), "Revenue structure of the dual-role as investor-contractors in PPP project", Nankai Business Review International, Vol. 11 No. 2, pp. 283-298. https://doi.org/10.1108/NBRI-08-2019-0043