Modeling optimal thresholds for minimum traffic guarantee in public–private partnership (PPP) highway projects

Abstract Optimal upper and lower thresholds model for traffic guarantee are proposed to optimize the risk allocation between a government and a concessionaire considering the perspective of lenders and the risk tolerances of the participants. In this study, the condition for the lender to provide the loan is that the default probability of the project does not exceed the acceptable maximum default probability of the lender. The proposed model uses risk weights to reflect the risk tolerances of government and the concessionaire and adopts a Gini coefficient for risk to describe the rationality of risk allocation. The application of the model to a highway project shows that a traffic guarantee with optimal thresholds effectively balances the project risks for both the government and concessionaire.