The Influence Of Governmental Incentives On The Investment Decision Of Private Sectors In PPP Projects

"Landing difficulty" of PPP(public-private partnership)projects is a dilemma encountered in the implementation of PPP model in China.How to formulate reasonable incentives to effectively attract private sectors to participate in PPP projects is an urgent problem to be solved for the government.However,current researches on governmental incentives either focus on analyzing the influence of governmental guarantees or subsidies on the ex post behavior of private sectors and project characteristics,or focus on evaluating the option value of governmental guarantees.There is still lack of analysis on tax exemption and risk sharing incentives,and also the influence of governmental incentives on the investment willingness of private sectors.To assist the government to better arrange the incentive scheme,this research investigated the impact of different governmental incentives on the investment decision of private sectors in PPP projects,and compared the relatively efficacy of these incentives on attracting private investment.Firstly,this research constructed a framework to analyze the investment decision of private sectors in PPP projects based on the real-option theory.The investment decision of private sectors in PPP projects is abstracted as three detailed decisions: participation decision,optimal capital structure decision and exit decision.Then,combining with the key factors that affect the private sector's participation in PPP projects,this research derived the expected profit boundary value that makes private sectors to invest in the PPP project,the optimal capital structure of the project and the expected profit boundary value that makes private sectors to exit from the project under different governmental incentives.Finally,to compare the relative efficacy of these different governmental incentives on attracting private investment,this research made a comparison between these expected profit boundary values under the condition of same incentive level and same governmental incentive cost,respectively.The findings of this research mainly include the following three aspects.First,the investment decision of private sectors is different under different financing arrangements.The expected profit boundary value that makes private sectors to invest in PPP projects is the lowest under the long-term debt financing,and the expected profit boundary value that makes private sectors exit from the project is higher under the short-term debt financing than under the long-term debt financing and the equity financing.Second,although all governmental incentives can effectively attract private sectors to invest in PPP projects,the expected profit boundary value that makes private sectors exit from the project is higher under the minimum revenue guarantee and the debt guarantee than under the tax reduction incentive and the completion risk sharing incentive,and the optimal capital structure of the project is quite different under different governmental incentives.Third,no matter under same incentive level or same governmental incentive cost,the results show that the tax reduction incentive is the most effective incentive on attracting private investment.The results of this study can not only enrich and deepen the cognition of the impact of government incentives on private sectors' investment decisions in PPP projects,but also provide decision support for the government to scientifically select and formulate incentives to attract private sectors to participate in PPP projects.