Contract design for BOT roads in the presence of autonomous vehicles

Abstract

This paper examines contract design for Build-Operate-Transfer (BOT) road projects in the presence of autonomous vehicles (AVs). We incorporate the impact of AVs on expanding road capacity through their platooning effect, whereby AVs travel in coordinated fleets with reduced headways. We derive the first-best BOT contracts under two distinct traffic management policies: the integrated policy, in which AVs and human-driven vehicles (HVs) share lanes, and the designated-lane policy, in which AVs and HVs use separate lanes. We also characterize the firm’s optimal BOT contracts under each policy. Our results show that under the integrated policy, AVs may be charged a negative toll when their market share is sufficiently small and headways involving AVs are sufficiently reduced, while HVs are consistently charged a positive toll under both policies. We further demonstrate that first-best BOT contracts can be implemented under both policies with the support of government subsidies. In comparing the two policies under BOT contract, we find that the integrated policy outperforms the designated-lane policy in terms of firm profit and social welfare when the AV market share is either very low or very high. Finally, we show how lane capacity allocation under the designated-lane policy affects the policy preferences of both the government and the firm.