An ex ante bidding model to assess the incentive creation capability of a public-private partnership pipeline

摘要

The inherent risky nature of public private partnerships requires contractors to develop expensive project proposals, which is seen as a burden to enter the playing field. It is believed that a pipeline of projects could succeed in triggering contractors' enthusiasm and increasing competition. This paper theoretically assesses whether the pipeline serves as an effective tool to levy this barrier to entry. A theoretical model and a simulation experiment that mimics the tendering process with heterogeneity in the bidders' cost structure are presented. In particular, the impact on the ex ante bid preparation effort willingness and the mark-ups is assessed by heuristically approximating the Bayesian Nash equilibrium. A statistical scenario analysis approves that mark-ups are lower when more projects are included in the pipeline, leading to fiercer price competition and a lower government procurement cost. Nonetheless, the incentive creation with respect to investment efforts is limited according to the experiment. (C) 2015 Elsevier Ltd. APM and IPMA. All rights reserved.