BOT contracts : incentives and efficiency

Larry D. QIU, Susheng WANG*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

49 Citations (Scopus)


In recent years, governments have been increasingly adopting Build–Operate–Transfer (BOT) contracts for large infrastructure projects. However, BOT contracts have received little attention from economists. The apparent agency problem in BOT projects has never been analyzed. In this paper, we develop a model to examine the incentives, efficiency and regulation in BOT contracts. We show that a BOT contract with a price regulation during the concession period and a license extension after the concession period is capable of achieving full efficiency. Both license extension and price control are observed in many real-world BOT projects. We also investigate the efficiency in such contracts by considering other factors, including time consistency, price ceiling, foreign ownership, and the lack of price regulation.
Original languageEnglish
Pages (from-to)127-138
Number of pages12
JournalJournal of Development of Economics
Issue number1
Early online date29 Nov 2009
Publication statusPublished - Jan 2011
Externally publishedYes


  • BOT
  • License policy
  • Infrastructure
  • Incentives
  • Monopoly
  • Regulation

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