Please wait a minute...

Frontiers of Engineering Management

Front. Eng    2017, Vol. 4 Issue (2) : 156-170
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
Download: PDF(210 KB)   HTML
Export: BibTeX | EndNote | Reference Manager | ProCite | RefWorks

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 Authors: 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.
E-mail this article
E-mail Alert
Articles by authors
Xianjia WANG
Shiwei WU
Criterion layer zijElement layer zijk
Financing planFinancing capacity; financing cost; fund using plan; financing options; financial regulatory; financing experience;
Project designDesign conception; designing method; the technology and depth requirements of design; structure, layout, function; feasibility
Forming planning of project companyCapital structure; organization establishment; experience; qualified technician; operating capability; dispatching of rights and obligations
Construction schemeConstruction schedule; equipment; safety program; construction technique; invitation for bids; purchase plan; construction cost; environmental controls; quality surveillance; control of investment
Operation schemeScheme of test run; profitability; operation plan; maintenance measure; transfer plan
Risk factorEconomic 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
θiQiλiTi(1λi)CW si
Tab.2  The results for a direct mechanism of a PPP project
1 Bichler M (2000). An experimental analysis of multi-attribute auctions. Decision Support Systems, 29(3): 249–268
2 Bichler M (2001). The Furture of E-Markets: Multi-Dimensional Market Mechanisms.Cambridge: Cambridge University Press
3 Branco F (1996). Multiple unit auctions of an indivisible good. Economic Theory, 8(1):77–101
4 Branco F (1997). The design of multidimensional auctions. Rand Journal of Economics, 28(1): 63–81
5 Che I L (1993). Design competition through multidimensional auctions. Rand Journal of Economics, 24(4): 668–680
6 Che Y K, Kim J W (2009). Optimal collusion-proof auctions. Journal of Economic Theory, 144(2): 565–603
7 Chukwuemeka A, Amadi N N, Nyenke C U (2013). Public spending on transport infrastructure and economic growth in Nigeria. Journal of Sociological Research, 4(2): 438–446
8 David A S, Azoulay-Schwartz R, Kraus S (2006). Bidding in sealed-bid and English multi-attribute auctions. Decision Support Systems, 42(2): 527–556 10.1016/j.dss.2005.02.007
9 Dequiedt V (2007). Efficient collusion in optimal auctions. Journal of Economic Theory, 136(1): 302–323
10 Dong F Y (2013). Study on the system of tender evaluation index in BOT construction project. Dissertation for the Doctoral Degree.Wuhan: Wuhan University of Technology (in Chinese)
11 Hanák T (2016). Electronic reverse auctions in public construction procurement—Empirical evidence from the Czech Republic. Archives of Civil Engineering, 62(3): 47–60
12 Hua A P (2014). Research on marketization of public affairs in city management—A case study of the market bidding of Wuxi sanitation. Thesis for the Master’s Degree. Shanghai: East China University of Political Science and Law (in Chinese)
13 Huang H, Chen J (2010). Mechanism design on auctioning procurement contracts and bargainin. Journal of Management Sciences in China, 13(3): 1–7 (in Chinese)
14 Ke Y, Wang S Q, Chan A P C, Lam P T I (2010). Preferred risk allocation in China’s public-private partnership (PPP) projects. International Journal of Project Management, 28(5): 482–492
15 Lengwiler Y, Wolfstetter E (2010). Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer. Journal of Economic Dynamics and Control, 34(10): 1872–1892 10.1016/j.jedc.2010.03.002
16 Li L (2016). China’s infrastructure PPP mode selection research from perspective of game theory. Thesis for the Master’s Degree.Nanjing: Nanjing University (in Chinese)
17 Myerson R (1979). Incentive compatibility and the bargaining problem. Econometrica, 47(1): 61–73 10.2307/1912346
18 Nishimura T (2015). Optimal design of scoring auction with multidimensional quality. Review of Economic Design, 19(2): 117–143
19 Settoon R P, Wyld D C (2003). The ski slope to prosperity: An analysis of the potential impact of reverse auctions in government procurement in five southeast Asian nations. Asia Pacific Journal of Marketing and Logistics, 15(3): 3–19
20 Wang C, Dargahi F, Bhuiyan M F H (2012). On the tradeoff between privacy and efficiency: A bidding mechanism for scheduling non-commercial services. Computers in Industry, 63(6): 610–618
21 Wang H, Chen H M, Yang J X (2010). Optimal mechanism and its implementation in multidimensional auctions. Journal of Management Sciences in China, 13(8): 1–14 (in Chinese)
22 Wu X L, Zhou J, Wang J N, Chen X G (2012). The effect of two-dimensional tender contract design on investment and concession term for BOT projects. Journal of Industrial Engineering and Engineering Management, 3: 191–196 (in Chinese)
23 Xu N (2014). Research on critical success factors of PPP mode for quasi-operational urban infrastructure. Thesis for the Master’s Degree.Chongqing: Chongqing University (in Chinese)
24 Yin H, Wang X J (2006). Optimal auction mechanism for complements. Systems Engineering—Theory & Practice, 26(9): 60–66 (in Chinese)
25 Yin H, Wang X J (2008). Optimal auction mechanism design for government procurement. Journal of Systems & Management, 17(4): 365–370 (in Chinese)
26 Zhao D M, Wang Y Y (2012). Model and analysis of collusion between the auction agent and corruptive bidder in multi-dimensional auction. Mathematics in Practice and Theory, 42(8): 26–35 (in Chinese)
27 Zhou Y X, Wang X J, Liu H F (2011). The bidding mechanism of dedicated capital investment and operations in regional logistics center. Systems Engineering—Theory & Practice, 31(8): 1429–1440
Related articles from Frontiers Journals
[1] Xiaohu QIAN, Min HUANG, Yangyang YU, Xingwei WANG. Winner determination problem with loss-averse buyers in reverse auctions[J]. Front. Eng, 2017, 4(2): 212-220.
Full text