Open AccessGOVERNMENT SUBSIDIES IN PUBLIC-PRIVATE PARTNERSHIP PROJECTS BASED ON ALTRUISTIC THEORY
Author(s) -
Yinglin Wang,
Renhong Gao,
BonGang Hwang,
Ji-Cai Liu
Publication year - 2020
Publication title -
international journal of strategic property management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.43
H-Index - 30
eISSN - 1648-9179
pISSN - 1648-715X
DOI - 10.3846/ijspm.2020.11545
Subject(s) - subsidy , incentive , public economics , altruism (biology) , principal–agent problem , business , economics , government (linguistics) , finance , incomplete contracts , general partnership , enthusiasm , public–private partnership , public good , revenue sharing , principal (computer security) , microeconomics , revenue , market economy , corporate governance , psychology , social psychology , linguistics , philosophy , computer science , operating system
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.