A game theory approach for the renegotiation of Public-Private Partnership projects in Chinese environmental and urban governance industry

Public-Private Partnership (PPP) has been an effective and economic method for delivering environmental protection and urban projects. PPP has been widely adopted in project finance in developing countries such as China, in which environmental projects occupy the third largest number of projects. However, it is not possible to prepare a "perfect" contract accounting for all situations and uncertainties during the entire life cycle of a project. This will inevitably result in the renegotiation of the contract, with the circumstances and causes varying greatly from country to country. Environmental protection and urban projects are usually related to people's livelihoods; thus, the frequent occurrences of renegotiations may result in increased costs, reduced management efficiency or even poor performance of projects. Hence, game theory is applied in this paper to tackle the problem of PPP renegotiations in the context of environmental and urban projects in China, with the goal of pursuing the successful application of urban multiparty PPP projects. The two-player bargaining game model and the multiplayer coalitional game model are both proposed to model the renegotiation processes, and equilibrium solutions and implications are then derived. Finally, the performance of the model is verified with an example, the sewage disposal PPP project in Erhai Lake, to examine cooperation surplus allocation. This methodology gives clarity to the analysis of the behavioral dynamics of stakeholders in PPP projects and could facilitate rational and cautious decision making by participants. The study can also provide theoretical foundations for policy makers on the effective implementation of PPP procurement and management in the environmental and urban governance industry. (C) 2019 Elsevier Ltd. All rights reserved.