Open AccessDecision Making on Government Subsidy for Highway Public-Private Partnership Projects in China Using an Iteration Game Model
Author(s) -
Yujie Huang,
Hao Hu,
Jinjin Chen,
Lei Dai
Publication year - 2021
Publication title -
promet
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.315
H-Index - 19
eISSN - 1848-4069
pISSN - 0353-5320
DOI - 10.7307/ptt.v33i3.3567
Subject(s) - subsidy , incentive , government (linguistics) , private sector , business , public–private partnership , game theory , finance , public economics , revenue , negotiation , general partnership , stackelberg competition , economics , microeconomics , environmental economics , market economy , economic growth , linguistics , philosophy , political science , law
Government subsidy is an important responsibility of fiscal expenditure in public-private partnership (PPP) projects. However, an improper subsidy strategy may cause over-compensation or under-compensation. In this research, an iteration game model combining game theory and real option is established to describe the periodic decision-making process. The strategy game model is applied to characterize the behavioral interactions between stakeholders, and the real option theory is used to predict the project performance under the influence of their decisions. Besides, two new indicators, the efficiency of fund (SE) and the total extra cost paid by the private sector (ME), are proposed to evaluate the extra project revenue caused by each unit of the subsidy and the incentive effects of the subsidy. Consequently, the preliminary results indicate that a periodic and iterative negotiations regarding the subsidy will effectively improve the efficiency of fund compared to the traditional way. The results also show that it is important for the public sector to give incentives, encouraging the private sector to make more efforts on the project, rather than merely providing fund support. Further study will focus on more detailed and complicated behaviors of stakeholders based on the model proposed in this paper.