Risk allocation in public private partnerships in China's water projects: a principal agent approach

Past research on China’s public private partnerships (PPPs) shows that due to local governments’ lack of understanding, risks are not allocated properly. Long term contracts in the water sector present its own risks, unique due to the characteristic of water projects; however, there is little or no research about risk allocation on these projects in the literature. Risk and their allocation in PPP water projects are regarded as any other PPP project and are not analysed independently. Most research regarding risks in PPP projects in China have been done from the private sectors’ perspective and very limited research have focused on the government’s point of view. In this paper, we develop a framework to examine risk allocation particularly for PPP water projects from the government’s perspective in the context of China. Based on a review of the literature on risk allocation, three criteria were identified and used for the development of the framework and these criteria were discussed using the principal agent (PA) theory approach.