Abstract: The capability and effort level in PPP project are social capital’s private information. How to induce social capital to display real capability and effort level has been an important issue in the research of PPP project governance. In traditional research of incentive governance of PPP project, it is often assumed that social capital has only single private information, thus forming single adverse selection or moral hazard problems. However, in actual production of incentive governance of PPP project, social capital often has dual private information of his capability and effort level, leading to the coexistence of adverse selection with asymmetric information of type and moral hazard with asymmetric information of behavior. In this study, the incentive mechanism with coexistence of adverse selection and moral hazard in PPP project is designed. The incentive mechanism model for social capital with private information of capability and effort level is constructed, which takes output performance as incentive approach. Through designing of the optimal contract, the gain of social capital by claiming false information is not greater than that of reporting his true information, so that social capital is driven to display real capability and exert optimal effort level, and project efficiency is ensured. Moreover, fair preference of social capital is considered, and the effect of fair preference on incentive mechanism design under dual asymmetric information is discussed. Results corroborate that through reasonable incentive mechanism design of PPP project, dual purposes of information screening and inducing effort of social capital can be realized. Incentive intensity of the government is related to market distribution of social capital. Moreover, it will increase with improvement of envy preference intensity and weakening of blamed preference intensity of social capital. The developed model and method can provide decision-making basis and reference for solving the problem of incentive mechanism of PPP project.

Key words: PPP project, adverse selection, moral hazard, fair preference