Game Analysis Between Public And Private Sectors In The Construction Projects With PPP Scheme

For now the private sector plays a more and more important role in large infrastructure project. This situation arises from the need to reduce the infrastructure investment of the public sector. There are several financing patterns in dealing with the participation of private sector, such as BOT and PPP. This paper mainly talked about problems in PPP (public private partnership).At the building stage, the government should figure out certain contract to ensure the total investment from the private sectors would meet the demand of the whole project. As for private sectors, they need to satisfy the minimum standards about the quality of the construction, meanwhile investing as little as possible. Thus A useful financing allocation scheme is needed here to prevent problems such as free rider problem. First, we use game theory to find out several criterions, which can be used by the public sector to verify the rationality of an allocation scheme. Besides, we also consider the problem from the perspective of private sector especial in the most common cross-border project such as bridges and railways. Several game models are put forward to formulate the interaction among participants. With the help of game analysis, optimal strategies for separate participant in different situations have been found, based on which we figure out a scheme which can help these participants make the right choice in order to maximize their utilities.When it comes to project operation process, the operational cost is private information of the private sector. The government has to provide appropriate mechanisms to ensure that the service provider reports the correct cost. In China, we commonly use ex-ante compensation (SB-O-T) and ex-post compensation (B-SO-T) to deal with this problem. In the former one, we divide the project into commonweal part and beneficial part. The commonweal part is supposed to be sponsored by the government and relative private sectors. At the stage of operating, the commonweal part of construction would be leased to the private sectors. The rent from the lease acts as a mean for government to adjust the return rate of the private sectors. In the B-SO-T pattern, the whole project is financed and built by the private sectors. Based on the actual revenue and standard rate of return, government will share with the private sectors on any profit and loss. According to the results of the models above, we figure out what the government should do in order to make the private sector report the actual cost and what the private sector should do to maximize its profit in both situations.At the end of the concession period, the ownership of the project would be totally transferred to government free of charge. In consideration of this, the private company might consider adopting a more aggressive operation pattern which could maximize its profit in a short time but endanger the project in a long run. Therefore we used principle agent model to analyze this problem. According to the results of the model, the more the operation cost of the private company is, the more possibility that the company would adopt the aggressive operation pattern. In order to prevent this, the government should limit the variance of the exogenous variable in a reasonable range. Meanwhile, the government should also increase the coefficient of long-run revenue.