Game analysis of social capital violations and government regulation in public–private partnership risk sharing

Abstract

AbstractThe public–private partnership (PPP) mode entails a variety of risks because the government, private enterprises, financial institutions, and other participants have different interests. To prevent private enterprise violations, dynamic government regulation of PPP risk‐sharing is necessary. Game theory is used here to examine the game behavior of government regulators, private enterprises, intermediary agencies, and the public in the stage of tracking management after the initial risk‐sharing of the project. Primarily, this study analyzes whether private enterprises provide fully compliant reporting and whether government departments check the information by investigating the behavioral motivations behind strategic choices. The primary contribution of this study was to construct a game model of government due diligence inspection under the condition of public participation in regulation. The results of simulations revealed the behavioral characteristics and stability of the participants of PPP in terms of decision‐making. Furthermore, a sensitivity analysis between the state variables and several auxiliary variables was used to reveal the internal relationships of the participants’ strategic choices. This paper offers new insights into reducing violation behavior, protecting the public interest from harm, reducing government departments’ regulatory costs, and promoting effective regulation with public participation.