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.
Highlights
Public-private partnership (PPP) arrangements have gained worldwide popularity in the provision of public services and products, such as plants, highways and tunnels (Song, Zhao, Jin, & Sun, 2018)
The contribution of the article is to integrate altruistic theory with principal-agent theory to address the issue of government subsidies for private investors in PPP projects
The objective of this paper is to analyse the optimal risk distribution mechanism, i.e. the optimal government subsidies provided to private investors using principal-agent theory and altruistic theory approach
Summary
Public-private partnership (PPP) arrangements have gained worldwide popularity in the provision of public services and products, such as plants, highways and tunnels (Song, Zhao, Jin, & Sun, 2018). Their behaviours and incentive strategies can be explained by the principal-agent theory Using this theory, the primary objective of the paper is to construct a government subsidy model (i.e. the distribution of government guarantee option value) based on altruistic theory to provide a reference for both governments and private investors. The contribution of the article is to integrate altruistic theory with principal-agent theory to address the issue of government subsidies for private investors in PPP projects. This incentive mechanism is conductive to curb opportunistic behaviour of private investors, promoting the governance efficiency and sustainable development of PPP schemes. The findings stimulate questions about how different degrees of altruistic preferences might impact optimal government subsidies for both governments and private investors in PPP projects
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