Negotiation issues in forming public-private partnerships for brownfield redevelopment: Applying a game theoretical experiment

The redevelopment of a brownfleld can provide a range of societal, environmental but also economic benefits for a number of entities. In the Netherlands (and elsewhere), public-private partnerships are common practice for such projects, because of two main reasons. First, limitations to public funding have led governments to invite the private sector into various long-term arrangements for capital-intensive projects. Second, a comprehensive approach for the whole brownfield area may be more efficient and profitable, compared to piecemeal development via interventions by individual owners. This article investigates, with respect to brownfield redevelopment, the interaction behavior of two key parties in forming partnerships: the municipality and a private developer. It is assumed that, apart from their mutual interest to redevelop the brownfield area, they will have different interests as well. In order to indicate their specific interest and the negotiation outcome regarding the forming of a public private partnership, this paper makes use of an experimental game theory approach. Three specific negotiation issues were analyzed in our research: a building claim, future land use and reparcelling of the land. In addition, this paper suggests an eight-step procedure to conduct a game theoretical experiment. A survey was conducted in order to gather the required data for the experiment. The data have been used to estimate the payoffs variations between the two key parties in the mentioned negotiation games. Finally, by comparing sub game perfect Nash equilibrium generated game outcomes and direct expected outcomes of respondents, this paper experimentally proves that the game theoretical analysis provides a valid representation of a real world brownfield redevelopment negotiation within the Dutch institutional-economic context. The outcome of the experiment confirms the Dutch tradition of public private partnerships in urban development practice, with public and private bodies willing to share financial risks and returns in these projects. (C) 2015 Elsevier Ltd. All rights reserved.