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Government subsidies in public-private partnership projects based on altruistic theory

    Yinglin Wang Affiliation
    ; Jicai Liu Affiliation
    ; Ruolan Gao Affiliation
    ; Bon-Gang Hwang Affiliation

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.


First published online 27 January 2020

Keyword : public-private partnership projects, government guarantee, principal-agent theory, altruistic theory, risk-sharing, subsidies

How to Cite
Wang, Y., Liu, J., Gao, R., & Hwang, B.-, G. (2020). Government subsidies in public-private partnership projects based on altruistic theory. International Journal of Strategic Property Management, 24(3), 153-164. https://doi.org/10.3846/ijspm.2020.11545
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Mar 17, 2020
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This work is licensed under a Creative Commons Attribution 4.0 International License.

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