Concession Period Decision Models for Public Infrastructure Projects Based on Option Games

Abstract EN

Concession period is an important decision-making variable for the investment and construction of public infrastructure projects.

However, we currently have few scientific methods to exactly determine the concession period.

This paper managed to seek out concession period decision models for public infrastructure with option game theory, studied the influence of minimum government income guarantee and government investment on concession period, and demonstrated those models in the formulas mentioned in the paper.

The research results showed that the increase of minimum government income guarantee value would shorten the concession period, while the increase of income volatility, that is, the uncertainty, would lengthen the concession period.

In terms of government investment, optimal concession period would lengthen to some extent with the increase of government investment ratio and the income and the decrease of its guarantee value.

Yet, optimal concession period would shorten in case of extreme highness of the government investment ratio due to its high guarantee value.

And the government would accordingly shorten the concession period in case of the unchanged government investment ratio with the increased income volatility and risks.

Still, the paper put forward the argument that the government would apply various guarantee methods and implement flexible concession period in accordance with the specific circumstances of public infrastructure projects.