A System Dynamics Approach to Concession Period Optimization in Public-Private Partnerships (PPPs)

The success of public-private partnerships (PPPs) often depends on the duration of a project’s concession period. Although experts have invested considerable efforts into optimizing these periods, few have examined the complex, interactive effects of project-specific risks and bankability criteria on concession durations. To overcome this gap, this study develops a System Dynamics (SD) model that allows decision-makers to estimate the optimal concession period terms based on causal interactions between a project’s main risks and bankability. The model is applied using data from recent PPPs in Italy. The results show variable interest rates, inflation, operational expenditures (OPEX), and debt repayment mechanisms all uniquely impact the concession period.