An Improved Award-Penalty Mechanism Based on the Principal-Agent Theory in Build-Operate-Transfer Projects

BOT is the primary financing model which used in China to solve the capital needs for infrastructure construction, however, the current award-penalty mechanism couldn´t satisfy the development of BOT model; several problems about the quality and management rise during the authorized period. In view of this kind of situation, the paper introduces a new parameter ¿ based on the principal-agent theory to create a new drive contract s(x) in BOT projects, thereby improving the current award-penalty mechanism, the parameter ¿ depends on how hard the enterprises work, the quality parameter of the infrastructures that detected by the authorities, the managing situation and some exogenous variables that are unpredictable and uncontrollable. The improved mechanism can supply the guidance and foundations to realize the effective and rational supervise on the agents during the infrastructure construction and operation.