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Abstract:

Public-private partnerships are cutting edge long-term contractual arrangements between a private contractor and the government. The contractual complexity and the high pre-tender research cost are open sesames for inexperienced contractors to refrain from the opportunity. This study encompasses the bidding framework in a game-theoretical fashion while taking the bidders’ heterogeneity into account. A simulation captures the heterogeneous uncertainty of the project outcome. A Nash equilibrium method is proposed to arrive at an equilibrium strategy profile, while a strategy game serves as a competition context in order to find the best response in a particular environment. The dynamics reveal the importance of the controllable and uncontrollable project risk that could result in a reluctance for the inexperienced player and a constriction of the market. This occurrence of an oligopolistic situation might be overcome through the introduction of government compensation policies despite the fact that these could come at a fair price.