Optimal BOT contracts in a two-road transportation network

We consider the Build–Operate–Transfer (BOT) contracts for a newly built road within a transportation network which includes another existing free access road. We consider a standard BOT contract in which the firm builds and operates the new road in the concession period and then transfers it to the government in the post-concession period. We find that the government may not prefer the length of concession period as long as possible. Next, we consider a coordinated BOT contract between the government and the firm to form a board to build and operate the new road over the whole life. In such a case, we transform a bi-objective programming problem as a weighted sum of the profit of firm and social welfare of the society. We find that social welfare may not always increase with the government’s weight. Besides, if the government weight is low, the coordinated BOT contract will lead to a wider road than the standard BOT contract, even if the construction cost is high. If the government weight is high, the coordinated BOT contract will lead to a wider road if the construction cost is very low. In other cases, the coordinated BOT contract leads to a narrower road compared to the standard BOT contract.