Mechanisms to stimulate public-private partnership projects in the Principal-Agent model in China

Abstract

Subject. The article addresses mechanisms to stimulate public-private partnership projects (PPP projects) in the principal-agent model in China. Objectives. Using the principal-agent model, we consider areas of incentives for PPP projects in China, on the basis of the behavior of private capital. Methods. Drawing on the perspective of public incentives for private capital, we developed a "principal-agent" matrix incentive model. It rests on four types of effort behavior that exist for private capital. Results. The results of the matrix show that when the cost functions of the behavioral capital models in public-private partnership projects are independent of each other, the public-party incentives should be formulated separately, according to changes in the marginal rate of return and marginal costs of various behavioral models. When the behavioral models of private capital are in unobservable state, the targeted incentives of the public side should coincide with the rate of change in the value of the behavioral models themselves. Conclusions. We examined four levels of presence of public-private partnership projects in the Chinese economy and explained five incentives that the Chinese government implemented for PPP projects. Combined with the findings of the matrix model, the promotion of scientific incentives for government behavior regarding private capital participation in public-private partnership projects ultimately contributes to PPP project implementation.