Alternative model to determine the optimal government subsidies in construction stage of PPP rail transit projects under dynamic uncertainties (Q2217007)

Summary: Urban rail transit is a quasioperational project and its net cash inflow can hardly cover the investment expenditure. It is essential to determine an acceptable amount of government subsidy to ensure the financial viability of the PPP projects, so as to encourage the entry of the private partner. The partners involved in PPPs have common interests but conflict regarding the value of government subsidy. Considering the uncertainty characteristic by PPPs and information incompleteness in the decision-making process, this study presents a methodology to calculate the equitable subsidy ratio favored by both participants. This study divides the decision process into two steps. First, this study constructs a financial model and introduces an acceptable range of subsidy ratio by using the Monte Carlo simulation method. Second, this study uses the bargaining game theory to determine a particular subsidy ratio under incomplete information. To verify the applicability of the presented model, the researchers invoke an illustrative example for model validation. This research provides a referential and operational method for the government and private sectors to make government subsidy decisions for quasioperational projects.