Abstract
Public-private partnership (PPP) projects have played a critical role in providing infrastructure products and services in China. However, an efficient discounting criterion for PPP projects is still lacking, since the current constant discounting approach is independent of PPP projects' risk characteristics. This study investigates the impact of market risk and government credit risk on the discount rate for China's PPP projects using a consumption-based approach. We find that the discount rate for China's PPP projects in regions with high (low) local government credit risks is higher (lower) than that for general risky projects in the same industry. The proposed discounting model provides direct evaluation guidance for China's PPP projects. Further, the study provides a general analysis framework to determine the discount rate for global PPP projects.
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