Gomez, C; Castiblanco, D; Lozano, J M and Daza, C (2020) An exact optimization approach to the principal-agent problem in infrastructure projects via PPPs. International Journal of Construction Management, 20(6), pp. 679-689. ISSN 1562-3599
Abstract
PPPs are a compelling mechanism for infrastructure procurement but are vulnerable to the principal-agent problem due to the divergence in the parties' utility functions. This research considers PPPs in infrastructure maintenance problems, in which the principal pursues high performance levels, whereas the agent pursues cost-efficiency. This paper proposes an optimization model that describes infrastructure performance as a result of deterioration and maintenance processes, and computes the associated benefits and costs for the principal and the agent, combining game theoretical notions with life-cycle analysis. Illustrative examples show how the organizational conditions surrounding PPPs shape the parties' decisions and outcomes by running the model under different scenarios. For instance, the model can anticipate the agent’s optimal reaction to specific contractual conditions; i.e., what maintenance plan can be expected from a contractor depending on whether certain performance-related constraints or incentives are in place. Finally, the model can find the optimal maintenance plan for one party conditioned on respecting the other party’s optimum within a specified tolerance. This allows to explore a variety of middle-ground solutions and choose an alternative in which one party’s gain exceeds the other’s loss, providing evidence for incentive design. This research provides a quantitative tool to support decisions and policy on PPPs by integrating physical, financial, and organizational aspects of infrastructure management.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | exact optimization; infrastructure maintenance; principal-agent problem; public-private partnerships |
| Index terms: | deterioration, agent, evidence, partnership, efficiency, infrastructure management, infrastructure project, organizational aspect |
| Subjects: | material degradation and durability, business, evaluation and assessment methods, practitioner, partnership management, infrastructure and transport systems, performance management, infrastructure engineering |
| Topics: | Organizational Design, Quality Management, Roles and Professions, Stakeholder Management, Construction Materials, Engineering Principles, Research Practice |
| Descriptive scope: | 3 PCA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here