GOVERNMENT SUBSIDIES IN PUBLIC-PRIVATE PARTNERSHIP PROJECTS BASED ON ALTRUISTIC THEORY

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.

[1]  Paul R. Milgrom,et al.  AGGREGATION AND LINEARITY IN THE PROVISION OF INTERTEMPORAL INCENTIVES , 1987 .

[2]  A. Carroll.  The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders , 1991 .

[3]  John H. Miller,et al.  NOTES AND COMMENTS GIVING ACCORDING TO GARP: AN EXPERIMENTAL TEST OF THE CONSISTENCY OF PREFERENCES FOR ALTRUISM , 2002 .

[4]  E. Fehr,et al.  Relational Contracts and the Nature of Market Interactions , 2003, SSRN Electronic Journal.

[5]  U. Fischbacher,et al.  The nature of human altruism , 2003, Nature.

[6]  C. Y. Cheah,et al.  Valuing governmental support in infrastructure projects as real options using Monte Carlo simulation , 2006 .

[7]  Stephen M. Disney,et al.  The governing dynamics of supply chains: The impact of altruistic behaviour , 2006, Autom..

[8]  J. Elster.  Chapter 3 Altruistic Behavior and Altruistic Motivations , 2006 .

[9]  C. Brown,et al.  Public private partnerships: Incentives, risk transfer and real options , 2007 .

[10]  Gary P. Pisano,et al.  Toward a Theory of Behavioral Operations , 2008, Manuf. Serv. Oper. Manag..

[11]  Yaozhong Wu,et al.  Social Preferences and Supply Chain Performance: An Experimental Study , 2008, Manag. Sci..

[12]  F. D. Waal.  Putting the Altruism Back into Altruism: The Evolution of Empathy , 2008 .

[13]  Jane Allyn Piliavin.  Altruism and Helping: The Evolution of a Field: The 2008 Cooley-Mead Presentation1 , 2009 .

[14]  K. Kułakowski,et al.  To cooperate or to defect? Altruism and reputation , 2009, 0902.4451.

[15]  J. Piliavin,et al.  Altruism and Helping: The Evolution of a Field--The 2008 Cooley-Mead Presentation. , 2009 .

[16]  Albert P.C. Chan,et al.  Risk Allocation in Public-Private Partnership Infrastructure Projects: Comparative Study , 2010 .

[17]  Antonio Sánchez Soliño,et al.  A Real Options Approach for the Valuation of Highway Concessions , 2010, Transp. Sci..

[18]  Patrick T.I. Lam,et al.  Preferred risk allocation in Chinas publicprivate partnership (PPP) projects , 2010 .

[19]  Carlos M. Carvalho,et al.  Aggregation and the PPP Puzzle in a Sticky-Price Model , 2008 .

[20]  Guomin Zhang,et al.  Modelling optimal risk allocation in PPP projects using artificial neural networks , 2011 .

[21]  N. Costantino,et al.  A real options-based model to supporting risk allocation in price cap regulation approach for public utilities , 2011 .

[22]  The Role of Cooperation and Reciprocity in Structuring Carbon Sequestration Contracts in Developing Countries , 2012 .

[23]  Tao Zhou,et al.  How altruism works: An evolutionary model of supply networks , 2012 .

[24]  A. Wibowo,et al.  Modeling Contingent Liabilities Arising from Government Guarantees in Indonesian BOT/PPP Toll Roads , 2012 .

[25]  E. Fehr,et al.  COMPETITION AND RELATIONAL CONTRACTS: THE ROLE OF UNEMPLOYMENT AS A DISCIPLINARY DEVICE: Brown, Falk and Fehr Competition and Relational Contracts , 2012 .

[26]  Q. Hu,et al.  Who Benefits from Altruism in Supply Chain Management , 2012 .

[27]  C. Loch,et al.  Social preferences and emotions as regulators of behavior in processes , 2013 .

[28]  Matt Thompson,et al.  Real Options–Based Approach for Valuation of Government Guarantees in Public–Private Partnerships , 2013 .

[29]  Kuiran Shi,et al.  Altruism and Pricing Strategy in Dual-Channel Supply Chains , 2013 .

[30]  Farnad Nasirzadeh,et al.  Dynamic modeling of the quantitative risk allocation in construction projects , 2014 .

[31]  J. Houston,et al.  Corporate Socially Responsible Investments: CEO Altruism, Reputation, and Shareholder Interests , 2014 .

[32]  John F. Y. Yeung,et al.  Determining appropriate government guarantees for concession contract: lessons learned from 10 PPP projects in China , 2014 .

[33]  N. Carbonara,et al.  Concession period for PPPs: A win–win model for a fair risk sharing , 2014 .

[34]  Khalid Fahad Al-Azemi,et al.  Risk management framework for build, operate and transfer (BOT) projects in Kuwait , 2014 .

[35]  N. Carbonara,et al.  Revenue guarantee in public-private partnerships: a fair risk allocation model , 2014 .

[36]  Erick F. Oechler Solana.  Public Private Not-for-profit Partnerships: Delivering Public Services to Developing Countries☆ , 2014 .

[37]  C. Y. Cheah,et al.  Evaluation of restrictive competition in PPP projects using real option approach , 2014 .

[38]  Shuibo Zhang,et al.  Modeling the impact of government guarantees on toll charge, road quality and capacity for Build-Operate-Transfer (BOT) road projects , 2015 .

[39]  Queena K. Qian,et al.  Critical risk factors affecting the implementation of PPP waste-to-energy projects in China , 2015 .

[40]  Jicai Liu,et al.  Evaluation of the excess revenue sharing ratio in PPP projects using principal–agent models , 2015 .

[41]  Lianying Zhang,et al.  Balancing Public and Private Stakeholder Interests in BOT Concessions: Minimum Revenue Guarantee and Royalty Scheme Applied to a Water Treatment Project in China , 2015 .

[42]  Robert Dur,et al.  Altruism and Relational Incentives in the Workplace , 2015, SSRN Electronic Journal.

[43]  Van Son Lai,et al.  An Analysis of Government Loan Guarantees and Direct Investment through Public-Private Partnerships , 2011 .

[44]  A. Chan,et al.  Critical review on PPP research : a search from the Chinese and international journals , 2016 .

[45]  Weibo Xiong,et al.  Early-Termination Compensation in Public–Private Partnership Projects , 2016 .

[46]  Yafeng Yin,et al.  Optimal choice of capacity, toll and government guarantee for build-operate-transfer roads under asymmetric cost information , 2016 .

[47]  Mark A. Moore,et al.  Analyzing risk in PPP provision of utility services: A social welfare perspective , 2017 .

[48]  C. Y. Cheah,et al.  Pricing Mechanism of Early Termination of PPP Projects Based on Real Option Theory , 2017 .

[49]  N. Carbonara,et al.  Revenue guarantee in public–private partnerships: a win–win model , 2018 .

[50]  Yang Wang,et al.  A risk assessment framework of PPP waste-to-energy incineration projects in China under 2-dimension linguistic environment , 2018 .

[51]  Jinbo Song,et al.  Pareto optimization of public-private partnership toll road contracts with government guarantees , 2018, Transportation Research Part A: Policy and Practice.

[52]  Jicai Liu,et al.  Analysis of the risk-sharing ratio in PPP projects based on government minimum revenue guarantees , 2018, International Journal of Project Management.

[53]  Zhuofu Wang,et al.  Compensation mechanism for urban water environment treatment PPP project in China , 2018, Journal of Cleaner Production.

[54]  M. Marzouk,et al.  Mitigating risks in wastewater treatment plant PPPs using minimum revenue guarantee and real options , 2018, Utilities Policy.

[55]  S. Gundes,et al.  Optimized real options-based approach for government guarantees in PPP toll road projects , 2018 .

[56]  Fei Xu,et al.  Competitive–Cooperative Strategy Based on Altruistic Behavior for Dual-Channel Supply Chains , 2018, Sustainability.

[57]  Jicai Liu,et al.  Incentive game of investor speculation in PPP highway projects based on the government minimum revenue guarantee , 2019, Transportation Research Part A: Policy and Practice.

[58]  K. White,et al.  Understanding drivers’ altruistic driving decisions: A theoretically guided investigation , 2019, Transportation Research Part F: Traffic Psychology and Behaviour.