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

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

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The Author(s) 2017. Published by Higher Education Press. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0)