Incentive Mechanism for Municipal Solid Waste Disposal PPP Projects in China: Fid-Bau Portal

Incentive Mechanism for Municipal Solid Waste Disposal PPP Projects in China

Xueguo Xu / Tingting Xu / Meizeng Gui

In municipal solid waste disposal public–private-partnership (PPP) projects, economic benefits, as well as social and ecological benefits, are critical in sustaining sustainability development. However, private investors may make more efforts for economic benefits than for social and ecological benefits out of self-interest. Because the government does not have the same information that the investors have, information asymmetry leads to opportunistic behavior. To solve these problems, principal–agent models were established to analyze the incentive mechanism for encouraging investors to adopt a positive attitude toward both economic benefits and social and ecological benefits, inhibiting investors’ opportunistic behavior. In particular, numerical simulation was carried out to analyze the relationships between related parameters ( $c_{1}, c_{2}, c_{t}, a, β, k, λ, p$ ). The results show that the investors with higher comprehensive abilities are more willing to make efforts for social and ecological benefits. An increase in incentive and governance intensity would help to encourage investors to make more efforts for project benefits and to lower the level of opportunistic behavior adopted by investors. The complexity of the task and the fuzziness of the perception of effort input results aggravate the uncertainty and risk of the projects due to information asymmetry. Therefore, real-time and positive incentives are important. In order to ensure the social and ecological benefits of a project, performance standards should be set according to the actual situation; investors prefer fixed compensation with lower risk, but fixed compensation does not have incentive effect, and the proportion should not be too high.