The impacts on deposit and subsidy policy for infrastructure PFI projects

In this paper, we analyze the economic benefit of the deposit and the subsidy policy for infrastructure PFI (Private Finance Initiative) projects. One of the most substantial characteristics of PFI projects related to infrastructure facilities is existence of the external benefits. The objective of the SPC (Special Purpose Company) is to maximize the profit generated from the project. Therefore, with considering the external benefit of the PFI project related to infrastructure facilities, a private sector may have incentive to liquidate a valuable project in terms of social welfare. In this paper, we argue that the deposit policy and the subsidy policy implemented by the government play a role in giving an incentive to continue a valuable project. This paper shows that the policy which is a combination of deposit and subsidy policy payment can improve the efficiency of a PFI project with external benefits under the condition that the external benefit of project is uncertain.