Incentive Mechanism of Utility Tunnel PPP Projects with User Involvement

Abstract

Users of utility tunnel public–private partnership (PPP) projects are productive corporate entities with a specific scope, a limited quantity, and strong bargaining power. They possess the ability and motivation to participate in PPP projects through equity investments. Tunnel PPP projects involving user participation are implemented jointly by consortia comprising construction contractors and users. Given that the government, construction contractors, and users have different interests, significant conflicts of interest arise among them. Furthermore, there exists dual information asymmetry between the government and construction contractors, as well as between the government and users. The government lacks a direct observation of the true ability endowments of construction contractors and users prior to signing PPP contracts, and it cannot directly observe the effort levels exerted by the construction contractors and users after contract signing. The combination of dual information asymmetry and conflicting interests may result in adverse selection and moral hazard on the part of construction contractors and users. Drawing on principal–agent theory, this study constructed incentive models with and without user involvement, examined the impact of user involvement on the effort level of construction contractors and the performance of PPP projects, and designed a reasonable incentive mechanism. The objective is to ensure that construction contractors and users truthfully report their ability endowments during the bidding stage and exert optimal efforts during the construction and operation stages. This research provides new insights for promoting the sustainable development of tunnel PPP projects. A case analysis of a PT tunnel PPP project and an SC tunnel PPP project demonstrates the reasonableness and feasibility of the research findings.