Research On Governance Mechanism To PPP Projects From Relational Contract Perspective

Public-Private Partnership(PPP)model is an institutional innovation in the fields of modern infrastructure delivery and public service provision,and the core is the persistent cooperative relationship between the local government and social capital throughout the whole franchise period.This innovative framework aims to make full use of the advanced technologies and management experience of social capital to improve the quality of public goods and services and thus to promote social welfare.However,in the real world,both of the complexity of organization structure and external environment uncertainty are likely to result in behavioral divergence between these two parties in the implementation of PPP project,partnerships may gradually weaken or even collapse,leading to PPP project failure.On this occasion,how to realize the institutional advantage of PPP mode is the topic widely concerned in theoretical research and practice circles,and the design of an effective project governance mechanism is inevitably the relevant research field.The uncertainty of external environment is the challenge of PPP project governance.Among the whole franchise period,the relevant political,economic,social and technological conditions are constantly changing but cannot be accurately predicted.In particular,once the public and private hold distinct and inconsistent subjective judgments in relation to specific issues in future,high bargaining cost of the project negotiation is inevitable,which increases transaction cost of the public and private,thus makes potential cooperation value impossible to be realized in the process of PPP project implementation.This article is primarily to develop effective governance mechanism to PPP projects from relational contract perspective that can deal with the uncertain environment.Relational contract is an informal agreement between the parties to a transaction that cannot be verified by a third party.It is an important means to maintain the cooperation of the members of the organization.PPP projects emphasize the long-term partnership between public and private,and the potential role of informal rules should not be ignored.As a result,this article focuses on the governance effect of relational contract and also applicable boundary in PPP projects.The specific research contents are as follows:(1)The internal mechanism of relational contract governance in the PPP project.That is to say,how can informal rules formed between local government and social capital in the process of PPP project implementation effectively inhibit potential opportunistic behaviors?This chapter will firstly explain the behavioral economics foundation of relational contract governance through theoretical analysis.As governance effect of relational contract towards inter-organizational cooperation is never unconditional,along with the process of long-term trading,participants will compare the current benefits of cooperation with the expectation of continued cooperation.And the relational governance will be reliable only when the present value of the future benefits from continued cooperation can be much higher than the current benefit derived from cooperation deviation.Meanwhile,when an unexpected situation that is not specified in initial PPP contract arises,the side that is to maintain cooperative partnership will firstly attempt to cooperate with the other,only the opposite side is also cooperating,he will persist in the cooperative behavior;Otherwise he will turn to conduct an uncooperative punishment consistently in the further,this means that any party's opportunistic behavior will make all the subsequent steps to static games.(2)The governance boundary of relational contract in PPP projects.This section aims to reveal internal relations between related factors that determine the functional boundary of relational contract.Governance mechanism of relational contract depends upon the value of future cooperation,while for PPP projects in different industry sectors and at different stages of the same project,opportunism risk inherent in asset specificity investment is different,and functional boundary of relational contract also will be distinct.In accordance with behavioral economics foundation of relational contract governance,this article regards asset specificity investment in PPP projects as an important factor to revenue distribution and incorporates it into the established game model.By solving the incentive compatible constraint conditions,the specific quantitative relationship between functional boundary of relational contract and asset specificity investment can be obtained.Unlike existing empirical researches,this article firstly demonstrates the behavioral economics connotation of relational contract governance.On this basis,the repetitive game model in relation to automatic execution mechanism of relational contract is also established.And by solving the incentive compatible constraint conditions,the internal relation betweenasset specificity investment and governance boundary of relational contract is clarified.As a result,research in this article expounds the applicable conditions of relational governance in PPP projects at the level of cooperation efficiency,which can open a new horizon for study of governance mechanism towards PPP project.Finally,based upon the research conclusion,rational suggestions to maintain the governance role of relational contract are provided.