Effects of Regulation on Highway Pricing and Capacity Choice of a Build-Operate-Transfer Scheme

The build-operate-transfer (BOT) scheme is being used increasingly by governments in their drive to privatize major public transportation projects. In a BOT scheme, the main objective for the private investors in determining the viability of a BOT project is profit, whereas the main objective for the government is whether the construction of the BOT project will give a positive social welfare to the society. These two objectives are often seen to conflict with each other. In this paper, modeling and analysis of highway pricing and capacity choice of a BOT scheme are provided to illustrate the tradeoff between the two objectives. Regulation is normally imposed by the government to ensure that the BOT project satisfies certain requirements. Five cases of the BOT network design problem are analyzed: (1) BOT without regulation; (2) BOT with positive performance measures; (3) BOT with a maximum toll charge level; (4) BOT with a minimum roadway capacity; and (5) BOT with a maximum toll charge and a minimum roadway capacity. Numerical results using a case study of the intercity expressway in the Pearl River Delta Region in China are provided to examine the various effects of regulation on a BOT project.