Masamitsu Onishi

Bargaining model of construction dispute resolution

In this paper, a bargaining game model with two-sided outside options is presented to investigate the resolution mechanism of disputes under FIDIC Conditions of Contract, Red Book. Most disputes in construction contacts stem from disaccord in contractual interpretation. When a dispute arises, each party has two options between agreement and arbitration. Under FIDIC, either party has the right of calling in the arbitrators and the arbitral award binds the parties. While the mechanism of the dispute resolution process involves a complicated negotiation process, we focus on the mechanism of dispute resolution on the claim, which the contractor asserts, and propose a model by which we analyze the criteria for the choice between agreement and arbitration in the process.

Efficiency Analysis of Government Subsidy and Performance Guarantee Policies in Relation to PPP Infrastructure Projects

Sustainable operation of public-private partnership (PPP) infrastructure projects that are characterized by considerable external benefits is of vital importance. However, a liquidity shock might trigger an inefficient liquidation of a project by the special purpose vehicle (SPV) and the bank, whose objectives are to maximize the profits generated by the project. This study argues that performance guarantee and subsidy policies implemented by the government play a role in encouraging socially efficient decision-making by the SPV and the bank to ensure the continuation of socially valuable projects. The results show that both government subsidy and performance guarantee policies are effective in avoiding the inefficient liquidation of PPP infrastructure projects when the external benefits are large and certain. However, a performance guarantee policy might lead to inefficient continuation when the external benefits of a project are uncertain. Finally, we discuss the possibility that an integrated policy combining performance guarantees and government subsidies improves the efficiency of a PPP infrastructure project.

Risk-sharing rule in project contracts

In this paper, the risk sharing rules an investigated to characterize the contractual structure of the project contracts. The authors exclusively focus upon the GCW and the FIDIC forms, which can be regarded as typical examples of incomplete contract forms. Risks involved in construction works are classified into exogenous and endogenous ones. The paper claims that dear differences in both contract forms in coping with endogenous risks can be found, while there are no essential differences in dealing with exogenous ones. The paper concludes by summarizing the remaining research issues to be scrutinized in the future.

Contractual Efficiency of PPP Infrastructure Projects: An Incomplete Contract Model

This study analyses the contractual efficiency of public-private partnership (PPP) infrastructure projects, with a focus on two financial aspects: the nonrecourse principal and incompleteness of debt contracts. The nonrecourse principal releases the sponsoring companies from the debt contract when the special purpose vehicle (SPV) established by the sponsoring companies falls into default. Consequently, all obligations under the debt contract are limited to the liability of the SPV following its default. Because the debt contract is incomplete, a renegotiation of an additional loan between the bank and the SPV might occur to enable project continuation or liquidation, which in turn influences the SPV’s ex ante strategies (moral hazard). Considering these two financial features of PPP infrastructure projects, this study develops an incomplete contract model to investigate how the renegotiation triggers ex ante moral hazard and ex post inefficient liquidation. We derive equilibrium strategies under service fees endogenously determined via bidding and examine the effect of equilibrium strategies on contractual efficiency. Finally, we propose an optimal combination of a performance guarantee, the government’s termination right, and a service fee to improve the contractual efficiency of PPP infrastructure projects.

A Public-Private-Partnership model with moral hazard of SPC and bank

This paper analyzes moral hazard problems in PPP (private-public-partnership) projects. Moral hazard is classified into two types: the special purpose companys (SPC) and the banks moral hazard. In a regular tender process, the SPCs moral hazard cannot be deterred. A reserve tender system can do it better in deterring the SPCs moral hazard, though at the same time it might induce the banks moral hazard. Furthermore, the SPCs moral hazard is triggered once the banks moral hazard occurs. The paper concludes that the banks monitoring is valid for the deterrence of the moral hazard of the SPC and the bank.

The Impacts on Deposit and Subsidy Policy for Infrastructure PFI Projects

In this paper, we analyze the economic benefit of the deposit and the subsidy policy for infrastructure PFI (Private Finance Initiative) projects. One of the most substantial characteristics of PFI projects related to infrastructure facilities is existence of the external benefits. The objective of the SPC (Special Purpose Company) is to maximize the profit generated from the project. Therefore, with considering the external benefit of the PFI project related to infrastructure facilities, a private sector may have incentive to liquidate a valuable project in terms of social welfare. In this paper, we argue that the deposit policy and the subsidy policy implemented by the government play a role in giving an incentive to continue a valuable project. This paper shows that the policy which is a combination of deposit and subsidy policy payment can improve the efficiency of a PFI project with external benefits under the condition that the external benefit of project is uncertain.

Liquidity risks and demands for earthquake insurances

In this paper, a three-period model with debt overhang is proposed to analyze the mechanism that a risk-neutral firm calls for earthquake insurance. If the firm needs to make an additional investment to continue operation due to an earthquake, the firm must procure liquidity assets immediately. However, the firm may confront debt-overhang problem, which mean that the firm cannot procure for the additional investment. This paper shows earthquake insurance can alleviate such a debt-overhang problem.

Managerial incentive and recovery from PFI project insolvency

PFI (private finance initiative) is a means of procuring public services through private investments. In this paper, a recovery procedure for PFI projects in Japan is proposed to secure a stable supply of necessary public services. The recovery procedure for PFI projects must include mechanisms to achieve recovery efficiently. In order to establish a bankruptcy procedure for PFI projects, their inherent characteristics and constraints should also be considered. This work first explains the desirable goals of bankruptcy procedures and presents the BAHM model, which has been proposed to solve the substantial problems facing private companies with regard to bankruptcy reform. Secondly, the characteristics and the constraints of PFI projects, different from those of private projects, are clarified. Finally, recovery procedures for PFI projects are proposed by applying the BAHM model and taking into account the particularities of PFI projects.