Public Infrastructure Traditional Supply Mode VS PPP Mode

The great achievements in infrastructure construction in China benefit from the direct supply of public goods by the government,however,the traditional supply model is gradually facing the problem of insufficient funds,and the supply efficiency is declining.Since the Third Plenary Session of the 18 th Central Committee of the CPC had been successfully held,the Public-Private Partnership project(PPP)was encouraged to carry out around the nation.Infrastructure and public service were gradually open to social capital.It is also encouraged to combine the government's public service function with the social capital's management efficiency and technical innovation.However,the financing cost of the social capital side is too high,lead to the total cost of public goods supply,.Therefore,which model is the best choice for public goods supply? It depends on the trade-off between financing costs and supply efficiency.This paper expands Hart's(2003)model,and builds an analytical framework based on agency theory,comparing the traditional supply model of public goods with the PPP model.The focus of this paper is how shareholding ratio of social capital parties and subsidies will affect social benefits when there is a difference in financing costs between public sector and social capital,trying to rationally distribute control to achieve optimal efficiency.The main conclusions of our study are as follows.Firstly,If there is a tiny gap of financing costs between social capital and public sector and social capital has paid optimal effort in construction period,it is wiser to let social capital operate the projects.Secondly,the greater difference in financing costs,the smaller proportion of shares the social capital will hold,which is not conducive to technological innovation and management capacity improvement,and the negative effect caused by this is greater than the positive effect of social capital on project efficiency improvement.Thirdly,when the financing cost varies greatly,even if the social capital is endowed with more control rights,the social benefits generated by the project under the PPP model are still lower than that of the traditional supply model,At this time,either the traditional supply model is adopted,or the government is required to give more subsidies,but the government's financial burden will increase.