Signaling game analysis of transfer mechanisms of PPP projects: Considering investors' moral hazard and adverse selection behavior

At the end of the concession period of a public–private partnership (PPP) project, investors transfer the project to the government. As the party with an information disadvantage, it is difficult for the government to accurately judge the project quality. Investors may conceal the true quality information of the project to obtain a higher transfer price. This will harm the interests of the government and society. Therefore, we introduce a theoretical method of the signaling game to analyze the probability judgment of the government on quality information. The impact of different transfer modes on the investors' disclosure of true information about project quality and behavior of moral hazard is analyzed. The results show that the difference in the transfer prices, the disguised cost, and the reputation value are important factors in determining the strategy choice of investors. The government should use the transfer mechanism of transfer price differentiation in the transfer stage of PPP projects and formulate a reasonable transfer price difference of projects. This cannot only realize the screening of project quality information by the government but also inhibit the opportunistic behavior of investors during the franchise period and promote the sustainable development of PPP projects. Practical Applications: Selecting an appropriate transfer mechanism is pivotal for the sustainability of PPP projects. This study examines the effects of transfer mechanisms on investors' adverse selection and moral hazard, proposing strategies to mitigate speculative behaviors. It offers recommendations for government and investor quality information disclosure during the transfer phase to enhance project sustainability. First, when effective regulatory oversight exists, uniform pricing or gratuitous transfers are preferable; otherwise, differentiated transfer pricing is advised. Second, for projects where quality is highly influenced by human factors, differentiated pricing effectively deters speculative behavior, while stringent regulatory measures may be necessary in other cases. Third, enhancing transparency and using advanced quality inspection can mitigate adverse selection. Finally, sustaining PPP projects requires strict adherence to contractual principles, ensuring a balance between output and returns, and fostering positive government demonstration effects.