Reassessing Risk Sharing In Transportation: A Game Theory Study Of Price Adjustment Clauses

Abstract

Departments of Transportation (DOTs) use trigger-based price adjustment clauses (PACs) to stabilize material cost fluctuations by distributing risk. Their effectiveness depends on the contractor's bidding strategy and the market conditions. However, there is little empirical evidence proving they ensure fair risk-sharing. Research suggests PACs have minimal influence on contractor pricing or bidding strategies, challenging their purpose. This highlights the need for a structured evaluation that accounts for market conditions, project duration, and pricing strategies. This study assesses how trigger-based PACs impact risk-sharing in transportation projects by analyzing asphalt and fuel prices in Ohio. The methodology includes three steps: analyzing historical price trends, conducting game-theoretic modeling using Bayesian Nash Equilibrium across 324 scenarios, and applying machine learning classification to extract general conclusions. Results indicate that market conditions primarily drive outcomes. When prices rise significantly, higher trigger values lead to excessive contractor bids, reducing efficiency. In stable conditions, overbidding persists but can be controlled through moderate triggers and performance-based incentives. When prices decline, eliminating trigger values while keeping PACs enhances market stability. These findings challenge the assumption that trigger-based PACs ensure fair risk-sharing, advocating for adaptive, data-driven policies that adjust to market fluctuations rather than relying on static thresholds.

Department(s)

Civil, Architectural and Environmental Engineering

International Standard Book Number (ISBN)

978-078448698-6

Document Type

Article - Conference proceedings

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2026 American Society of Civil Engineers (ASCE), All rights reserved.

Publication Date

01 Jan 2026

Link to Full Text

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