A Study Of The Efficiency And Welfare Distribution Of The Renegotiation In PPP Project With Two Forms Of Accountability

As a developing country with a huge population, the demands of all sectors of the Chinese masses for public goods have been very strong and the government’s investment in it has been keeping a rapid growth for a long term(a long-term growth at a high speed). So far as the situation of economic development at present stage, the so called “new urbanization” has been given an important role in the economic transformation plan, with its target focused on the development of small and medium-sized city and the construction of mega city. In this process, along with the continuous concentration of population, there will be a geometric growth in the demand of public goods. If the effective supply of public goods with quality ensured cannot be solved, the concentration of the population will pose a negative impact on the development of the city, and may even lead to the “urban disease”, thus hinder the process of urbanization.According to the traditional theory of public goods, public goods and public services should be purchased by the government. In the era of effects(achievements) only measured through GDP, some public investment projects, slow in effect and poor in short-term profitability, like environmental protection and culture education, etc, obviously will not conform to the taste of the decision-making officers, therefore on which the input is often less. But even if the government and enterprises are willing to provide adequate public goods and services, against the backdrop of traditional theory, relying only on the government finance to support the public investment is far from enough to meet the huge demand. In addition, in the production of public goods through state-owned enterprises, due to factors like singularity of market structures and imperfect systems, excessive support is given to the state-owned enterprises while the relative binding force is not strong enough, which gradually forms a monopoly enterprise or industry oligopoly, finally resulting in products with unitary type and slow in innovation and updating, causing serious efficiency loss.On the basis of the supply and demand contradiction caused by the rapid expansion of the demand while relatively lacking of supply capability, people began to explore a new mode of production of public goods through proper introduction of market forces, stimulating “folk capital” of private sectors to participate in public investment projects so as to expand the supply. From this the Public-Private Partnership(PPP) emerges. The first official contract of PPP project in history was born in Britain in 1982 with its main purpose to relieve the situation resulting from the lack of the traffic capacity of the country at that time. The specific approach is that private enterprises are responsible for the construction of the project, in turn a period of concessionary management right will be granted by the government to them in order to recover the cost and make a profit. After the expiration of the contract, the private enterprises should transfer the management right back to the government’s public management department. Therefore, this mode is also known as BOT(Build-Operate-Transfer) mode. This project had to a certain extent meet the demand for transportation service and was a huge success then.However, with the promotion of the PPP mode, its drawbacks are becoming increasingly prominent. The main reasons are that the PPP project usually has characteristics like large amount of investment, long payback period for the management and large numbers of participants, which lead to the increased risk of uncertainty after contracting, causing high degrees of incompleteness of contract, making it more likely to renegotiate compared with traditional project. The principles of economics showed that renegotiation often brings a certain degree of damage to the project’s efficiency and social welfare. Taking the Eurotunnel project and the Philippines state power project for example, renegotiation even becomes a key factor affecting the success of PPP projects. A bad renegotiation result may bring huge loss to both contracting parties and even the consumer groups. Therefore, the study on the influencing factors in the renegotiation process of PPP projects and developing countermeasures accordingly are of great significance.From the existing research results, many factors could pose impact on the renegotiation of PPP project, among them the conflicting goals between the government and enterprises is an important one. Since regulation as the main government regulation behavior① is the concrete manifestation of government goal in PPP projects, the study of the role of government regulation played in the renegotiation process of PPP projects helps to explore new ways to improve the efficiency of PPP projects.Taking this as a breakthrough point, this thesis explores various types of PPP mode and its deformation, summarizing and extracting the common attributes and characteristics of different PPP modes. With the combination of principal-agent theory, incomplete contract theory, property rights theory, public goods theory and other theories, and on the assumption that the government as a “mediator” of the multiple principal agent relationship is in pursuit of total social welfare, namely maximizing the sum of enterprises profit and consumers return, this thesis studies the impact that the government would pose on the efficiency of renegotiation of PPP projects and the welfare distribution results through the establishment of accountability mechanisms. The study results show that renegotiation will indeed have negative impact on the efficiency of PPP projects and the total social welfare, and both the vertical and horizontal accountability have certain limitations. But efficient vertical accountability mechanisms generally would make consumers get more protection in the process of total social welfare loss, whereas horizontal accountability mechanisms make the distribution results of welfare more focused on private enterprises. This thesis further believes that improving the government regulation system, promoting three-dimensional regulation and carrying forward the scientization, standardization and legalization of PPP project management, can to a certain degree reduce the post-uncertainty, helping to save the renegotiation cost, thus improving the production efficiency of PPP project and increasing social welfare.