An Analysis Using Game Theory on the Investment Incentive of PPP Projects

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 NTD 10 billion of capital. In Feb. 2015, project report by Ministry of Finance indicated that signed PPP projects over the years have injected investment for an amount of approximately NTD 30.6 billion in 2014, which create economic growth rate of about 0.24%. Therefore, government is aggressively promoting PPP in recent years aiming to attract private investment of NTD 100 billion per year. Up to date, there are still some conflicts, especially the issue of royalty as PPP policy has been an important issue of the industry. We establishes the analysis criterion through the concept of the game equilibrium and simulate to explore the PPP investment incentives of the equilibrium conditions. Investment incentives game model provides the method for the government and tenders to evaluate if the minimum royalty formulated by government have Investment incentive; this study proposed “fixed mode” and “change mode” two modes to discuss. Fixed 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 tenders to create excess profit ratio. Changed mode shows it’s difficult to have investment incentive when the land value higher then tenders’ investments.