Research On Risk Sharing Of PPP Project Based On Evolutionary Game Analysis

In order to solve the fiscal debt burden,the local governments of China have begun to run the Public-Private Partnership(shown as PPP below)in the construction of infrastructure and public services since 2014.It could optimize allocation of resources and improve the service quality of public infrastructures by running PPP model which could combine the advantages of the government and private capital in infrastructure construction.However,it would make the PPP project fail if one of the sectors involved in the arrangement dealt with the risks irrelevantly because of the large scale of investment,long-term nature,complex projects and numerous participants.Therefore,the government unit and the private sector would pay more attention to the risk sharing of PPP projects gradually.Nowadays,the government and the private participants have reached a consensus on the principle of risk division,that each sector should undertake different macro risks and internal risks separately during the cooperation,however,there are still huge disagreement on the PPP project's shared risk.This paper aims to study the effective solutions for the government unit and the private sector's shared risks in a PPP cooperation arrangement based on Evolutionary Game Theory and Matlab Simulation.First of all,to define the significance of studying the risk sharing in a PPP cooperation,this paper would analyse the PPP theories and review the literatures on PPP model's risks and risk sharing.Moreover,the current situation and shortages would be discussed critically from 4 different views which are patterns,principles,structures and methods of risk sharing in a PPP project.Secondly,it would describe the definition and basic theories in order to make the factors more clear,such as participants' main roles,the patterns of risk sharing,the current situation of public and private sectors arranged in a PPP cooperation,and the applicability of game theory,which could clarify the risk objects.Thirdly,an evolutionary game model related to the participants' behavior strategies would be stablished based on the evolutionary game theory.According to the replicator dynamics equation and Jacobian matrix,this paper would verify the stability of Evolutionary Game Theory,what is more,run an evolutionary trajectory's Matlab simulation of the public and private sectors' cooperation strategy,to discuss the reasonable risk sharing,control and management strategies of PPP projects.The study indicates that the government units should undertake shared risks as much as they could and the private business should bring better services or improves the city's capacity to operate more effectively.Both the public and private sectors should make full use of their advantages to perform their duties,maintaining a good cooperative relationship in a PPP project based on a reasonable principle of risk sharing.This paper would like to suggest that governments had better clarify the responsibilities and rights of franchise rights and select the merit-based private partners.Moreover,the public units should complete mechanisms related to the PPP cooperation arrangement throughout the projects' lifecycle,such as renegotiation,performance assessment,development adjust and supervision.Meanwhile,the private business develop interest rate products and take the inflation into consideration carefully.Finally,this paper highly recommends that governments and enterprises establish a government credit rating system on PPP projects.This paper is based on the current situation of public-private risk sharing and the difficulty of project risk management,combining the risk response paths of risk taking,risk transfer,risk avoidance and risk reduction.In summary,according to the evolutionary game model established previously,this paper provides dividing strategies of risk sharing in the infrastructure construction used PPP model.There would be magnificent significance on guiding the government and private sectors to undertake and manage the shared risk.