China’s Shale Gas Development Subsidy Analysis and Optimization considering Resource Endowment Characteristic

Abstract

The currently implemented indiscriminate subsidy policy in China is difficult to provide effective incentives for a firm’s investment behavior because it does not take into account the differences in resource characteristics. Thus, this paper puts forward a type of differentiated subsidy that considers resource conditions, consisting of a basic guaranteed subsidy and a variable incentive subsidy. First, from the perspective of the economic efficiency of enterprises, the amount of basic subsidy required by enterprises is calculated by the discounted cash flow method. Then, from the government’s perspective, a variable incentive subsidy amount is calculated by establishing an expectation benefit maximization function using principal-agent theory. The case application shows that due to the superior resources and development conditions of the Fuling block, it requires a significantly smaller subsidy amount than the Weiyuan block which verifies the need to consider regional differences in the design of shale gas development subsidies.