Research On The Role Of Government In Expressway PPP Financing

China’s expressway industry has made great progress and needs more solid capital source.The Chinese central government encourages local governments to attract social capital to invest in expressway construction through PPP mode,and the PPP mode has made great progress in expressway industry.However,many cases of failure in practice affect the use of social capital and the sustainable development of expressway.Government plays a pivotal role in the expressway PPP financing.Currently,existing literature focuses mainly on the role of social capital in expressway PPP financing,and relatively few focus on the role of government.Literature on the role of government is lack of theoretical and systematic analysis which mostly focuses only on a single stage of expressway PPP financing.What is the mechanism of the success or failure of expressway PPP financing caused by the government’s role? In other words,what kind of contractual relationship can be built to better promote the role of the government and the success of PPP projects?This question can be divided into the following three sub-questions:(1)From the perspective of contract,what factors lead to the failure of expressway PPP financing?(2)Why can not the contract performance mechanism effectively restrain the opportunistic behavior of government and social capital?(3)What is the contract mechanism for the government to play the role in achieving the success of expressway PPP financing?This dissertation adopts the literature research,game modeling,case study and field research to analyze the government’s role in expressway PPP financing and clarifies main factors that affect the success of expreway PPP financing,including the contract incompleteness,uncertainty of expected earnings,and the two-way opportunistic risks from both parties.Based on the incomplete contract theory,this dissertation proposes a theoretical analysis framework of expressway PPP financing and tests the framework through evolutionary game models.This dissertation also anayzes the role of government in the Beijing Xingyan expressway PPP project and Hangzhou Bay Bridge PPP project under the context of the framework.The results show that the role of the government including clarifying benefit and risk sharing mechanism in advance,strengthening supervision at all levels to prevent two-way opportunistic risk of social capital and the government,is critical to the success of the expressway PPP financing.The main conclusions are as follows:(1)At the stage of ex-ante contract making,the active intervention of government departments can reduce the risk of financing failure and safeguard the public interest.Influenced by the conflict between the profit-seeking nature of social capital and the public interest of expressway,the difficulty in realizing the expected return of social capital may lead to the failure of PPP financing.Government can actively intervene the expected return of social capital by providing minimum vehicle flow and additional packaged rights and interests based on the concept of risk sharing,so as to effectively stimulate the participation of social capital in the project and avoid financing failures.Meanwhile,the government should play the role of redistribution of the excess return of social capital,and introduce the excess return distribution mechanism,which can not only ensure that social capital gets a reasonable return,but also prevent social capital from grabbing huge profits through project investment.The public interest is thus remained protected.(2)In the post-contract implementation stage,there is probability of failure in the supervision of the government,and the introduction of disciplinary measures can avoid the opportunistic behavior from social capital.In the three evolutionary equilibrium strategies,no matter what strategy the government adopts,social capital will adopt opportunistic strategy,and government supervision fails.When the government introduces disciplinary measures against social capital’s opportunistic behavior through the credit constraint mechanism,even if the government adopts the non regulatory strategy,as long as the income from social capital performance is higher than that from opportunistic behavior,social capital will perform positively,and finally achieve the optimal evolutionary stability strategy.(3)In the post-contract implementation stage,the government may also take opportunistic behaviors,which will further cause social capital to take opportunistic behaviors.In view of the two-way opportunistic risks of social capital and government,it is difficult to achieve the optimal stability strategy simply by the evolutionary game between government and social capital themselves.Under this circumstance,it is necessary to introduce a higher-level governance mechanism and increase the punishment for both parties’ opportunistic behaviors.As long as the amount of penalty imposed by higher-level regulators on any party is higher than the amount of traffic flow subsidies,and the expected income from social capital’s positive performance is higher than income after deducting the penalty from the income of opportunistic behavior,the optimal stability strategy can be realized.The key innovation of this dissertation is mainly reflected in the following three aspects:(1)Based on the incomplete contract theory,this dissertation proposes an analytical framework for the role of the government in expressway PPP financing,and theoretically clarifies that the government should actively intervene in expressway PPP financing before signing the contract,take disciplinary measures after signing the contract,and adopt the supervision mechanism of higher authorities or law to prevent self-opportunism.This provides a theoretical explanation for the current phenomenon of expressway PPP financing failure.(2)This dissertation introduces the concept of two-way opportunistic risk of government departments and social capital and the concept of the guaranteed traffic flow,and analyzes the reasons and manifestations of opportunistic behavior of government and social capital in expressway PPP financing.It proposes measures to optimize the governance mechanism of expressway PPP financing transactions by considering the two-way opportunistic risks of government departments and social capital.This provides a theoretical basis for effectively avoiding the two-way opportunistic risk of government departments and social capital.(3)This dissertation breaks through the existing research framework that mostly seeks to optimize the contract mechanism from government departments and social capital itself,and proposes to design a mechanism that relies on a higher level of regulatory authorities or legal systems to constrain the opportunistic behavior of both parties.It provides contract theory support for the government and social capital to form a long-term and stable cooperation mechanism in expressway PPP financing.