IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v12y2020i18p7686-d414928.html
   My bibliography  Save this article

Incentive Mechanism for Municipal Solid Waste Disposal PPP Projects in China

Author

Listed:
  • Xueguo Xu

    (School of Management, Shanghai University, Shanghai 200444, China)

  • Tingting Xu

    (School of Management, Shanghai University, Shanghai 200444, China)

  • Meizeng Gui

    (School of Management, Shanghai University, Shanghai 200444, China)

Abstract

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.

Suggested Citation

  • Xueguo Xu & Tingting Xu & Meizeng Gui, 2020. "Incentive Mechanism for Municipal Solid Waste Disposal PPP Projects in China," Sustainability, MDPI, vol. 12(18), pages 1-16, September.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:18:p:7686-:d:414928
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/12/18/7686/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/12/18/7686/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Guangbin Wang & Yingxia Xue & Mirosław Jan Skibniewski & Jiule Song & Hao Lu, 2018. "Analysis of Private Investors Conduct Strategies by Governments Supervising Public-Private Partnership Projects in the New Media Era," Sustainability, MDPI, vol. 10(12), pages 1-26, December.
    2. Peng Li & Ju Liu & Cuiping Wei, 2019. "A Dynamic Decision Making Method Based on GM(1,1) Model with Pythagorean Fuzzy Numbers for Selecting Waste Disposal Enterprises," Sustainability, MDPI, vol. 11(20), pages 1-19, October.
    3. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
    4. Li, Shuai & Cai, Hubo, 2017. "Government incentive impacts on private investment behaviors under demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 115-129.
    5. Jing Du & Hongyue Wu & Xianbo Zhao, 2018. "Critical Factors on the Capital Structure of Public–Private Partnership Projects: A Sustainability Perspective," Sustainability, MDPI, vol. 10(6), pages 1-27, June.
    6. Lei Gao & Zhen-Yu Zhao, 2020. "The Evolutionary Game of Stakeholders’ Coordination Mechanism of New Energy Power Construction PPP Project: A China Case," Sustainability, MDPI, vol. 12(3), pages 1-24, February.
    7. Xiaodan Zheng & Jingfeng Yuan & Jiyue Guo & Mirosław J. Skibniewski & Sujun Zhao, 2018. "Influence of Relational Norms on User Interests in PPP Projects: Mediating Effect of Project Performance," Sustainability, MDPI, vol. 10(6), pages 1-19, June.
    8. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    9. Wang, Grace W.Y. & Pallis, Athanasios A., 2014. "Incentive approaches to overcome moral hazard in port concession agreements," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 67(C), pages 162-174.
    10. Lei Gao & Zhen-Yu Zhao, 2018. "System Dynamics Analysis of Evolutionary Game Strategies between the Government and Investors Based on New Energy Power Construction Public-Private-Partnership (PPP) Project," Sustainability, MDPI, vol. 10(7), pages 1-17, July.
    11. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    12. Junhan Huang & Rui Zhao & Tao Huang & Xiaoqian Wang & Ming-Lang Tseng, 2018. "Sustainable Municipal Solid Waste Disposal in the Belt and Road Initiative: A Preliminary Proposal for Chengdu City," Sustainability, MDPI, vol. 10(4), pages 1-15, April.
    13. Rangel, Thais & Vassallo, José Manuel & Arenas, Blanca, 2012. "Effectiveness of safety-based incentives in Public Private Partnerships: Evidence from the case of Spain," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(8), pages 1166-1176.
    14. Massoud Sofi & Ylias Sabri & Zhiyuan Zhou & Priyan Mendis, 2019. "Transforming Municipal Solid Waste into Construction Materials," Sustainability, MDPI, vol. 11(9), pages 1-22, May.
    15. Chong, Yih Tng & Teo, Kwong Meng & Tang, Loon Ching, 2016. "A lifecycle-based sustainability indicator framework for waste-to-energy systems and a proposed metric of sustainability," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 797-809.
    16. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    17. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying, 2015. "Modeling the impact of government guarantees on toll charge, road quality and capacity for Build-Operate-Transfer (BOT) road projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 54-67.
    18. Shahbaz, Muhammad & Raghutla, Chandrashekar & Song, Malin & Zameer, Hashim & Jiao, Zhilun, 2020. "Public-private partnerships investment in energy as new determinant of CO2 emissions: The role of technological innovations in China," Energy Economics, Elsevier, vol. 86(C).
    19. Libiao Bai & Yi Li & Qiang Du & Yadan Xu, 2017. "A Fuzzy Comprehensive Evaluation Model for Sustainability Risk Evaluation of PPP Projects," Sustainability, MDPI, vol. 9(10), pages 1-22, October.
    20. Xuhui Cong & Li Ma, 2018. "Performance Evaluation of Public-Private Partnership Projects from the Perspective of Efficiency, Economic, Effectiveness, and Equity: A Study of Residential Renovation Projects in China," Sustainability, MDPI, vol. 10(6), pages 1-21, June.
    21. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    22. Cumming, Douglas, 2007. "Government policy towards entrepreneurial finance: Innovation investment funds," Journal of Business Venturing, Elsevier, vol. 22(2), pages 193-235, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaoxing Zhang & Changyuan Gao & Shuchen Zhang, 2021. "Research on the Knowledge-Sharing Incentive of the Cross-Boundary Alliance Symbiotic System," Sustainability, MDPI, vol. 13(18), pages 1-20, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    3. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Sara Martinez-de-Morentin, 2017. "Performance Measurement and Incentive Intensity," Journal of Labor Research, Springer, vol. 38(4), pages 496-546, December.
    4. Czarnitzki, Dirk & Kraft, Kornelius, 2009. "Capital control, debt financing and innovative activity," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 372-383, August.
    5. Christian Zehnder & Holger Herz & Jean-Philippe Bonardi, 2016. "A Productive Clash of Cultures: Injecting Economics into Leadership Research," CESifo Working Paper Series 6175, CESifo.
    6. Bengt Holmström, 2017. "Pay for Performance and Beyond," American Economic Review, American Economic Association, vol. 107(7), pages 1753-1777, July.
    7. Brent Boning & Casey Ichniowski & Kathryn Shaw, 2007. "Opportunity Counts: Teams and the Effectiveness of Production Incentives," Journal of Labor Economics, University of Chicago Press, vol. 25(4), pages 613-650.
    8. Kraft, Kornelius & Niederprum, Antonia, 1999. "Determinants of management compensation with risk-averse agents and dispersed ownership of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 17-27, September.
    9. Carolyn J. Heinrich & Gerald Marschke, 2010. "Incentives and their dynamics in public sector performance management systems," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(1), pages 183-208.
    10. Golman, Russell & Bhatia, Sudeep, 2012. "Performance evaluation inflation and compression," Accounting, Organizations and Society, Elsevier, vol. 37(8), pages 534-543.
    11. Dietrichson, Jens, 2013. "Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations," Working Papers 2013:26, Lund University, Department of Economics.
    12. Bingley, P. & Eriksson, T, 2001. "Pay Spread and Skewness. Employee Effort and Firm Productivity," Papers 01-2, Aarhus School of Business - Department of Economics.
    13. Delfgaauw, Josse & Souverijn, Michiel, 2016. "Biased supervision," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 107-125.
    14. Omar Al‐Ubaydli & Steffen Andersen & Uri Gneezy & John A. List, 2015. "Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 538-561, January.
    15. Orlov, Dmitry, 2022. "Frequent monitoring in dynamic contracts," Journal of Economic Theory, Elsevier, vol. 206(C).
    16. Nicola Lacetera, 2003. "Incentives and spillovers in R&D activities: an agency-theoretic analysis of industry-university relations," Microeconomics 0312004, University Library of Munich, Germany.
    17. Shi, Shasha & Yin, Yafeng & An, Qingxian & Chen, Ke, 2021. "Optimal build-operate-transfer road contracts under information asymmetry and uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 152(C), pages 65-86.
    18. Luis Garicano & Richard A. Posner, 2005. "Intelligence Failures: An Organizational Economics Perspective," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 151-170, Fall.
    19. Iain Cockburn & Rebecca Henderson & Scott Stern, 1999. "Balancing Incentives: The Tension Between Basic and Applied Research," NBER Working Papers 6882, National Bureau of Economic Research, Inc.
    20. Fangqing Zhang & Xiaolong Wu & Shujun Zhang, 2022. "Exploring the Continuous Motivation of Algorithm Engineers under Multiple Objectives: A Mixed-Methods Study," Sustainability, MDPI, vol. 14(22), pages 1-17, November.
    21. Raymond O. S. Zaal, 2011. "Reinforcing Ethical Behavior through Organizational Architecture: A Hypothesized Relationship," Chapters, in: Killian J. McCarthy & Maya Fiolet & Wilfred Dolfsma (ed.), The Nature of the New Firm, chapter 2, Edward Elgar Publishing.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:12:y:2020:i:18:p:7686-:d:414928. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.