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

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.

► We model two hospitals which have regulated prices and compete on quality.
► We examine changes in the level of information about hospital quality.
► Increasing information will increase quality if hospital costs are similar.
► Increasing information will decrease quality if hospital costs are very different.
► Welfare effects depend on ex-ante or ex-post assumptions about quality information.