Mechanism design of reverse auction on concession period and generalized quality for PPP projects

doi:10.15302/J-FEM-2017016

Front. Eng

2017, Vol. 4

Issue (2) : 156-170 https://doi.org/10.15302/J-FEM-2017016

RESEARCH ARTICLE

Mechanism design of reverse auction on concession period and generalized quality for PPP projects

Xianjia WANG, Shiwei WU(

)

School of Economic and Management, Wuhan University, Wuhan 430072, China

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Abstract

Reverse auctions of PPP projects usually require the bid to specify several characteristics of quality and the concession period to be fulfilled. This paper sets up a summary function of generalized quality, which contributes to reducing the dimensions of information. Thus, the multidimensional reverse auction model of a PPP project can be replaced by a two-dimensional direct mechanism based on the concession period and the generalized quality. Based on the theory of the revelation principle, the feasibility conditions, equilibrium solution and generalized quality requirements of such a mechanism, considering the influence of a variable investment structure are described. Moreover, two feasible multidimensional reverse auctions for implementing such a direct mechanism: Adjusting the scoring function and establishing a special reverse auction rule are built. The analysis shows that in these types of reverse auctions, optimal allocation can be achieved, the social benefit under the incomplete information will be maximized, and the private sector with the highest integrated management level wins the bid. In such a direct mechanism, the investment and financial pressure of the public sector can be reduced.

Keywords PPP project reverse auction mechanism design multidimensional information scoring function two-stage bidding

Corresponding Author(s): Shiwei WU

Just Accepted Date: 13 June 2017 Online First Date: 05 July 2017 Issue Date: 17 July 2017

Cite this article:

Xianjia WANG,Shiwei WU. Mechanism design of reverse auction on concession period and generalized quality for PPP projects[J]. Front. Eng, 2017, 4(2): 156-170.

URL:

https://academic.hep.com.cn/fem/EN/10.15302/J-FEM-2017016
https://academic.hep.com.cn/fem/EN/Y2017/V4/I2/156

Criterion layer $z i j$	Element layer $z i j k$
Financing plan	Financing capacity; financing cost; fund using plan; financing options; financial regulatory; financing experience;
Project design	Design conception; designing method; the technology and depth requirements of design; structure, layout, function; feasibility
Forming planning of project company	Capital structure; organization establishment; experience; qualified technician; operating capability; dispatching of rights and obligations
Construction scheme	Construction schedule; equipment; safety program; construction technique; invitation for bids; purchase plan; construction cost; environmental controls; quality surveillance; control of investment
Operation scheme	Scheme of test run; profitability; operation plan; maintenance measure; transfer plan
Risk factor	Economic risk; legal risk; political risk; environment risk; social risks; market risk; operational risk; construction risk; cooperation risk; management risk

Tab.1 The generalized quality indicator system of PPP project

$θ i$	$Q i ∗$	$λ i$	$T i ∗$	$(1 − λ i) C$	$W$	$s i$
0.80	0.736931	0.693286	19.2705	0.746132	5.14634	5.11461
0.85	0.743651	0.700879	19.6924	0.726470	5.16019	5.12794
0.90	0.750249	0.708348	20.1105	0.707159	5.17371	5.14117
0.95	0.756742	0.715711	20.5257	0.688162	5.18693	5.15420

Tab.2 The results for a direct mechanism of a PPP project

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