Optimal concession contracts for landlord port authorities with different pursuing goals

ABSTRACT

This paper investigates how landlord port authorities should offer concession contracts to their terminal operators under two different goals, by building a two-stage game for each goal. If maximizing the weighted sum of fee revenues and throughout benefits is port authorities’ goal, then the optimal concession contract can be any of the two-part tariff, the unit-fee, and the fixed-fee contracts. Accordingly, our special cases include previous works assuming that port authorities maximize either fee revenues or throughput benefits. By contrast, if maximizing the social welfare is the goal, then we find that subsidizing terminal operators, instead of charging them, is port authorities’ best choice. This result is not yet discovered in the literature.

KEYWORDS:

• Fixed-fee
• landlord ports
• social welfare
• throughput
• two-part tariff
• unit-fee

Acknowledgments

The authors would like to thank editor Kevin Li and two anonymous referees for their valuable comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. When port authorities are (local) governments, they may put higher weights on throughput benefits, especially in an election period. However, a larger weight may be given to fee revenues if port authorities are private companies.

2. Table 1 of Section 2 summarizes their differences.

3. Since operator 2 may not lease terminals in some fee contracts, both interior () and boundary () solutions should be considered. They can be derived from (12)–(13). For instance, if while if However, we will focus on (14)-(15) and discuss more details after condition (18) and in footnote 5.

4. Condition suggests while condition implies Since the latter condition contains the former.

5. That is because by and . But has an uncertain sign.

6. For instance, the port authority of Portland subsidizes its terminal operator ICTSI (see http://www.joc.com/port-news/us-ports/port-portland -ore at 2014).

Additional information

Funding

The last two authors would like to thank the Ministry of Science and Technology, Taiwan for providing research funding [Project No.: MOST 105-2410-H-305-068].