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Discounting for public-private partnership projects in China

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  • Luo, Lanlan
  • Zou, Ziran
  • Chen, Shou

Abstract

Public-private partnership (PPP) projects have played a critical role in providing infrastructure products and services in China. However, an efficient discounting criterion for PPP projects is still lacking, since the current constant discounting approach is independent of PPP projects' risk characteristics. This study investigates the impact of market risk and government credit risk on the discount rate for China's PPP projects using a consumption-based approach. We find that the discount rate for China's PPP projects in regions with high (low) local government credit risks is higher (lower) than that for general risky projects in the same industry. The proposed discounting model provides direct evaluation guidance for China's PPP projects. Further, the study provides a general analysis framework to determine the discount rate for global PPP projects.

Suggested Citation

  • Luo, Lanlan & Zou, Ziran & Chen, Shou, 2021. "Discounting for public-private partnership projects in China," Economic Modelling, Elsevier, vol. 98(C), pages 218-226.
    • Handle: RePEc:eee:ecmode:v:98:y:2021:i:c:p:218-226
    DOI: 10.1016/j.econmod.2021.02.022
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    Cited by:

    1. Haktanır, Elif & Kahraman, Cengiz, 2023. "Intuitionistic fuzzy risk adjusted discount rate and certainty equivalent methods for risky projects," International Journal of Production Economics, Elsevier, vol. 257(C).

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    More about this item

    Keywords

    Public-private partnership project; Cost–benefit analysis; Government credit risk; Risk-adjusted discount rate; China;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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