Optimization of Government Subsidies in Infrastructure Public-Private Partnerships

Dan Wang, Xueqing Wang, Lu Wang, Henry Liu, Michael C.P. Sing, Bingsheng Liu

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


Purpose – This study aims to develop a Stackelberg Game Model for seeking the optimal subsidy plans with varying levels of government financial capability (GFC). Furthermore, the scenario-based analysis is conducted and will enable governments to identify a comprehensive subsidy plan to: (1) improve project performance and (2) optimise social welfare.

Design/methodology/approach – A Stackelberg Game Model is developed to optimise the effectiveness of subsidies on the performance of PPPs.

Findings – According to the scenarios that are generated from the model, governments that are confronting with limited public budgets could reduce the intensity of performance incentive and increase the participation-oriented subsidy. While a participation-oriented subsidy can stimulate private organisations’ willingness to participate in infrastructure PPPs, a performance-oriented subsidy is capable of facilitating the projects’ performances. Intuitively, the performance-oriented subsidy enables the private entities of PPPs to improve their efforts on the projects to realise higher profits. However, the participation-oriented subsidy is unable to affect the level of their effort spent on the projects. To satisfy both parties’ expectations in a PPP, the performance-oriented subsidy needs to be prioritised for a purpose of enabling higher quality outputs.

Practical implications – The game model developed in this study contributes to the literature by offering a new insight into the underlying mechanism of governments and private entities, in terms of their decision-making for subsidy planning and contributions (i.e. resource allocation and spending) during the life-cycle of PPPs. This research enriches the government subsidy model by revealing the effects of the GFC and clarifies the impacts of two different schemes of subsidy on the performance of PPPs.

Originality/value – Government has been conventionally viewed as being omnipotent to provide PPPs with a wide range of subsidies. However, the subsidies are not unlimited, due to GFC. In addressing this void, this study has modelled the impacts of government subsidy plans with a consideration of GFC-related constraints. The combined effects of the participation- and performance-oriented subsidies on the project performance of PPPs have been examined.
Original languageEnglish
Pages (from-to)1280-1302
Number of pages23
JournalJournal of Engineering, Design and Technology
Issue number5
Publication statusPublished - 27 Aug 2021


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