Discounting for public-private partnership projects in China

Lanlan Luo, Ziran Zou and Shou Chen

Economic Modelling, 2021, vol. 98, issue C, 218-226

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.

Keywords: Public-private partnership project; Cost–benefit analysis; Government credit risk; Risk-adjusted discount rate; China (search for similar items in EconPapers)
JEL-codes: D61 H43 H54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:98:y:2021:i:c:p:218-226

DOI: 10.1016/j.econmod.2021.02.022

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