A dynamic principal-agent framework for modeling the performance of infrastructure
Authored by David Paez-Perez, Mauricio Sanchez-Silva
Date Published: 2016
DOI: 10.1016/j.ejor.2016.03.027
Sponsors:
No sponsors listed
Platforms:
MATLAB
Model Documentation:
Other Narrative
Flow charts
Pseudocode
Mathematical description
Model Code URLs:
https://github.com/davpaez/contract-design
Abstract
This paper presents a novel approach to the problem of infrastructure
development by integrating technical, economic and operational aspects, as well as the interactions between the entities who jointly carry out
the project. The problem is defined within the context of a Public
Private Partnership (PPP), where a public entity delegates the design, construction and maintenance of an infrastructure system to a private
entity. Despite the benefits of this procurement method, the
relationship between the two entities is inherently conflictive. Three
main factors give rise to such conflict: the goals of the public and
private party do not coincide, there is information asymmetry between
them and their interaction unfolds in environments under uncertainty.
The theory of contracts refers to this problem as a principal-agent
problem; however, due to the complexity of the problem, it is necessary
to recreate a dynamic interaction between the principal (i.e., the
public entity) and the agent (i.e., the private entity) while including
the monitoring of the infrastructure performance as an essential part of
the interaction. The complex relationship between the sequential actions
of players and the time-dependent behavior of a physical system is
explored using a hybrid agent-based simulation model. The model is
illustrated with several examples that show the versatility of the
approach and its ability to accommodate the different decision
strategies of the players (i.e., principal, agent) and the model of a
physical infrastructure system. (C) 2016 Elsevier B.V. All rights
reserved.
Tags
Public-Private Partnerships
Game
Deterioration