An Analysis Using Game Theory on the Investment Incentive and Profit Allocation of PPP Projects
Date Issued
2016
Date
2016
Author(s)
Lin, Sheng-Lung
Abstract
According to the research of Taiwan Institute of Economic Research, the domestic PPP (Public Private Partnership) projects create economic growth rate of about 0.08% per 10 billion NTD capital formations. In Feb. 2015, the Ministry of Finance project report pointed out that signed PPP projects over the years had actual financial investment of approximately 30.6 billion NTD in 2014, to create economic growth rate of about 0.24%. Therefore, government is actively promoting PPP in recent years, and in order to attract private 100 billion NTD a year for the investment target. While PPP projects in the country has been an important part of the industry, but the push has derived some controversy, especially in the controversy of royalty. This study combined with game theory and EVA theory (Economic Value Added), established investment incentive and profit allocation two kinds of game model, used the difference between government and business firms operating in the same PPP project ability to create excess profits allocation ratio of the composition, and then analysis criteria established by the concept of game equilibrium through simulation of simulate and actual cases, explore the equilibrium conditions and outcomes of the PPP investment incentive and profit allocation. Investment incentive game provides government and bidders to evaluate if the minimum royalty formulated by government have investment incentive; this study proposes “fixed allocation” and “changed allocation” two modes to discuss. Fixed allocation mode shows it has investment incentive when the minimum royalty decided by investments ratio or act lower than the reasonable profit allocated by the capacity of the government and bidders to create excess profits ratio. Changed allocation mode shows it’s difficult to have investment incentive when the land value higher then bidders’ investments. Profit allocation game model provides government and bidders to decide the strategies and profit allocation of game equilibrium in PPP selection or bargain phase. This study proposes three commonly seen modes of bidders to discuss, include “rational participation,” “priority bid” and “priority profit” modes. The results show that when the capacity of government and bidders to create excess profits is similar, rational bidders will adopt an honest strategy, with each assigned half of the excess profits. When the cheat strategy becomes the equilibrium strategy, bidders should try to widen the gap between the investment plan excess profits and the actual estimated excess profits within a range acceptable to government to increase the chances of the bid or best profits.
Subjects
Game theory
EVA
Investment incentive
Profit allocation
SDGs
Type
thesis
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