Designing Pareto Efficient Build-operate-transfer Contracts for Road Franchising

Private provision of public roads through build-operate-transfer (BOT) contracts is increasing around the world. This paper develops the definition of Pareto efficient BOT contracts and investigates the properties of such kind of contract using a bi-objective programming approach under perfect information. Under certain conventional assumptions, any Pareto efficient BOT contract should be designed with: (1) concession period to be set as the whole road life; (2) the volume-capacity ratio, and thus the road service quality to be controlled as the socially optimal level whenever the road construction cost exhibits constant returns to scale in capacity.