Investigating The Incentives Mechanism Of Profits Distribution In Infrastructure BOT Projects

Various means of financing are being developed with the problem of the rapidly increasing need of the public infrastructure. The BOT pattern (build-operate-transfer model),as a new effective financing models, is widely used in infrastructure construction. In the operation of BOT projects, project company’s information superiority and contingent decision behavior result in a lower project’s construction cost inputs than government ever expected, the poor quality of BOT project makes government’s utility and public welfare suffer losses after the project transferred to the government. A longer concession period can stimulate the project company to invest more construction cost according to quality requirement, but it can easily cause the project company to obtain more excessive profits because of the project company’s information superiority and contingent decision behavior, which limits the effectiveness of extending the concession period. Based on the previous research, this paper establishes an incentive mechanism for project company from profits getting of view. In particular, it changes the implementation of BOT projects, in which government’s operating period of BOT projects after being transferred to and project company’s concession period are connected, project company is authorized by government the deputizing rights to operate and manage projects in government’s operating period. The government is involved in the entire project economic life, during which the cash generated by the projects is prorated according to the clauses specified in the contract agreement as agreed by two parties. A so-called "Incentives mechanism of profits distribution" is set up in infrastructure BOT projects, and mathematical models are established and used to analysis the above questions.Concession period is very important in the income distribution of the BOT project, after analyzing of process of implementation, a decision model of concession period is established, and the optimal concession period and construction investment of project company are calculated. The construction investment of project company is growing with the extending of the concession period, and the economic life and social life are also growing.After establishing the incentives mechanism of profits distribution, the thesis establishes the mathematics decision model of the benefit assignment proportion in BOT projects, and the most superior decision-making of profits distribution proportion allotted to project company by government and company’s optimal investment in construction costs is solved through theory modeling. Project company will increase its optimal investment in construction costs if the profits distribution proportion allotted to project company by government is bigger and its own expected life cycle for the BOT projects is longer. The economic life and social life of BOT projects are extending. It is mathematically proved that the total benefit, project company’s profits and government’s benefit grow simultaneously after establishing incentives mechanism in infrastructure BOT projects. The BOT projects’ social benefits are also adding and internal structure of social benefits is currently optimized. If the project’s products demand curve changes, the assignment proportion of income should also be changed accordingly. The paper analyses the problem of profits distribution proportion adjustment allotted to project company. The adjusted profits distribution proportion of project company would not make the incentive effects of mechanism decrease, which can ensure company’s rational profits and avoid losing government’s benefits and social welfare. The incentive effects of the established incentives mechanism in BOT projects will not be subject to decline due to changing in the project product demand.The established profits distribution incentives mechanism also has very strong effects in the improvement of project technology and management and the investments of operation maintenance. This paper studies the issue of concentrate, phased investment on improving technology and the investments of operation maintenance on management by establishing mathematical model. The established incentives mechanism can improve BOT project company’s investment motive, the total benefit and social benefits are improved too. The mechanism produces a good incentive effect. The investments of operation maintenance exists the optimal solution when it is used to prolong the economic life of a BOT project. Under proof by induction, it finds that optimization of increment in operation maintenance is larger after establishing profits distribution incentives mechanism.The profits distribution incentives mechanism also plays an essential role in various aspects, such as dealing with project risk, income adjusting, governmental supervision, reform in government organization, high quality goods and efficient services constantly providing. Government can expand the social benefits of BOT project, improve the level of public service provision, promotes economic structural transformation, and ensures the development of socioeconomic by establishing profits distribution incentive mechanism in BOT projects.