Comparison of royalty methods for build–operate–transfer projects from a negotiation perspective

Comparison of royalty methods for build–operate–transfer projects from a negotiation perspective

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Article ID: iaor20123511
Volume: 48
Issue: 4
Start Page Number: 830
End Page Number: 842
Publication Date: Jul 2012
Journal: Transportation Research Part E
Authors: , ,
Keywords: economics, game theory
Abstract:

This study constructs a royalty negotiation model for the bi‐level programming (BLP) problem and develops a heuristic algorithm for solving the BLP problem. Concession rate, learning effect, and the time value discount rate are integrated into the proposed algorithm to reflect an authentic negotiation process. A case study is employed to simulate the negotiation behavior of two parties and alternative royalty strategies are discussed. Analytical results indicate that the two parties acquire the best negotiation result during the fifth negotiation. The operational revenue‐based royalty model is more preferred by governments, while concessionaires favor more the operational output‐based royalty model.

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