Towards fairly sharing risks in public-private partnership projects: Shapley value approach

Public-private partnership (P3) provides communities with the required infrastructure projects while adequately sharing projects’ risks by both parties. To the author’s knowledge, the existing literature lacks a model that accounts for the marginal contribution of both the public and private entities in reducing the project’s shared risks. This paper presents a novel approach to fairly divide the different P3 risks based on the ability of the participating parties. The proposed approach utilizes cooperative game theory via Shapley value to fairly divide the risk allocations. Two independent surveys were carried out to (1) define shared risk factors; (2) identify the ability of each stakeholder in controlling the impact of the shared risk factors; and (3) validate the proposed approach's results. The findings of this research support that Shapley value can be used to fairly divide the risk factors and their associated costs based on the participants’ marginal contribution. It was also made clear that the type of P3 funding scheme significantly impacts the allocation and the acceptance of decision makers to such values. This paper contributes to the body of knowledge by providing an approach to fairly divide various shared risk factors of P3 project, thus reducing disagreements in P3s.