Government Subsidies in Public-Private Partnership Projects Based on Altruistic Theory

Abstract

Nowadays, the public-private partnership (PPP) scheme has been widely adopted in infrastructure projects around the world. In PPP projects, the governments participate as a principal and the investors play the role of an agent, and therefore their behaviours and incentive strategies can be explained and designed by the principal-agent theory. As “economic men” with limited rationality, both the governments and the investors have altruistic preferences during cooperation. This paper studies how project participants’ altruistic preferences affect government subsidies based on the principal-agent theory. To this end, a principal-agent model in the presence of altruism is developed. The results show that the amount of government compensation is related to the altruistic preferences, the expected revenue, costs and investors’ efforts. Contrary to intuition, the governments’ altruism actually undermines the investors’ enthusiasm in cooperation and the risk-sharing propensity, although it increases the utilities of both parties. Moreover, when selecting the investors, governments should examine their operating capacity carefully, which has a significant impact on the sustainable development of the projects and even PPP arrangements. The findings contribute new insights into the development of incentive mechanisms between governments and private investors from the perspective of the behavioural preferences.

Study on an Intelligent Prediction Method of Ticket Price in a Subway System with Public-Private Partnership

“…(1) Due to the public welfare aspect of the subway service, the government has strict supervision over subway service prices, and it is impossible for private investors to recover their investment through ticket revenue, thus subsidies have a great impact on the revenue of private investors [39]. In general, the greater the government subsidy, the lower the fare of the PPP subway system.…”

Designing successful business strategies for private public partnerships: an ontological approach

“…The most important reasons for the introduction of the PPP/PFI schemes into a country's infrastructural development are four. First, the funding of private investors provides relief from government budget constraints (Wang et al, 2020;Eadie et al, 2013).…”

“…PPP projects are internationally present in more than 85 countries (OECD, 2008). The PFI is a form of a PPP that was introduced in the early 1990s in the UK, but there is also global interest towards investing in such collaboration schemes (Wang et al, 2020;Regan et al, 2009;Holden, 2009). The most important reasons for the introduction of the PPP/ PFI schemes into a country's infrastructural development are four.…”

“…The most important reasons for the introduction of the PPP/ PFI schemes into a country's infrastructural development are four. First, the funding of private investors provides relief from government budget constraints (Wang et al, 2020;Eadie et al, 2013). Second, the valuable experience necessary for providing knowledge transfer to a project's design (Zhu et al, 2017;Oteng-Adjei, 2012).…”

“…A common international practice, at the construction stage, refers to public servants often negotiating complex demands and preferences without the necessary business knowledge or experience (Wang et al, 2020;Pitman and Holve, 2009). Results of such practices are devastating for all stakeholders due to lack of CSFs in the PPP's value chain of activities (Microlinks, 2009).…”