Research On The Hold-up Problem Of Introducing Social Capital Into Railway Industry Based On Contract Perspective

The construction and development of railway in China has been restricted by the insufficient funding problem for a long time.Chinese government and railway industry also made efforts to advance the reform of railway investment and finance system by publishing a series of incentive policies to introduce social capital to the railway construction projects.However,the hold-up problem seriously hindered this progress.Therefore,it is necessary to study the hold-up problem.The classical researches of the hold-up problem in infrastructure financing generally pay attention to road transport and railway transport outside China.Their theoretical framework is less powerful in explaining the hold-up problem in China railway industry because of the difference in industrial characteristics and market structure.Researches of the hold-up problem in China railway industry mainly focus on the unilateral hold-up behavior of the state-owned railway company and ignore the possibility of bilateral hold-up where social capital can also implement hold-up behavior.Meanwhile,the arising of hold-up problem in railway construction projects is closely associated with the characteristics of railway industry and social capital which makes the problem particular accordingly.The general hold-up model that existing researches established based on the incomplete contract theory cannot explain the failure of contract enforcement mechanism during the process of introducing social capital to railway construction projects.The question this paper raised is:what is the generating mechanism of the hold-up problem when introducing social capital to railway industry?This question can be further extended into three sub-problems:(1)what is the cause of such hold-up problem?(2)what is the influence of the characteristics of railway industry and social capital on the hold-up problem?(3)Why the contract enforcement mechanism fails in avoiding hold-up problem?Except for analyzing the rule of China railway construction and operation,the paper also studied the sponsorship contract signed by all participants and the entrusting agreement through literature analysis and field research methodology.Proceeding from identifying the characteristics of railway industry and social capital,the paper built a new theoretical framework based on the incomplete contract theory trying to explain the arising hold-up problem during the process of introducing social capital to railway industry.The paper answered the question which was raised earlier by studying the contract enforcement procedure of social capital and railway company.On this basis,the paper expounds the influence of contract factors and market factors on the contract enforcement mechanism.Then a generating mechanism of the hold-up problem was proposed and verified by a game model.In order to examine the effectiveness of the analytical framework,the paper empirically investigated the hold-up problem which occurred during introducing social capital to Jinwen railway project and Taiwan high speed railway BOT project.The research results are consistent with the analytical framework built in this paper.According to the analysis of the reason about the failure of contract enforcement mechanism,this paper puts forward the coping mechanism of the hold-up problem.It is proposed in this paper that through the reasonable mechanism design,the obstacles which affect the contract enforcement mechanism can be solved and make it effective to promote the introduction of social capital into railway construction.Three conclusions were presented based on this mechanism:(1)the hold-up problem is actually a failure of the contract enforcement which is caused by the contract enforcement mechanism losing its binding effect upon the participants.(2)The attributes of railway industry and the social capital influence the performance of the contract.It makes the hold-up problem in railway industry has particularity,mainly in the following aspects:the railway's public welfare attribute and the social capital's profit-seeking characteristic result in inconsistent purpose;The construction of railway project is time consuming and complex,which makes participants difficult to clearly stipulate the return of investment.The railway transportation have strong network feature,so the joint-venture railway is easily affected by the national railway in operation and income clearing.The asset-specific property of railway project makes participants suffered by hold-up behaviors difficult to withdraw from the transaction.(3)The main reasons for the failure of contract enforcement mechanism are as follows:the uncertainty of railway project's schedule and cost,the information asymmetry among participants both increases the difficulty of observing the performance of participants.This make the third party enforcement mechanism is difficult to take effect;the monopoly of the railway market structure,the opacity of the market environment and the lack of long-term cooperation prospective between railway project participants weaken the effect of contractual self-enforcement mechanism;the network attribute of railway transportation makes the social capital difficult to solve the hold-up problem by vertical integration.The public welfare property of the railway project increasing the risk of national railway being hold-up by social capital.