The Impacts of Deposit and Subsidy Policy for Infrastructure PFI projects

Abstract

In this paper, we analyze the economic benefits of the deposit and subsidiary payment policy for infrastructure PFI (Private Finance Initiative) projects. One of the substantial charactersitics of infrastructure PFI projects is existence of externatiliy. SPC (Special Purpose Company) is interested in only their own cashflow. With considerable externality, a socially effcient project can be liquidated by them. In this case, deposit and compensation policy implemented by the government play a role in making an efficient project continue. Under the stochastic value of externality of a project, the policy which is a combination of deposit and subsidiary payment can improve efficiency of the project.