Dilemma of Taiwan's Private Finance Policy and Its Solutions

In recent decades, private participation in provisions of public services has been growing into a global trend. Against this backdrop, Taiwanese government has made substantial efforts at promoting this procurement system. Nonetheless, owing to overemphasis on self-sufficiency ratio or even unduly regard for the principle of “zero government funding” as of utmost importance in practice, the government procurement authority was often forced to award the private investor the excessive right to develop affiliated facilities in order to make the project financially viable. The private investor who normally put profit maximisation before any other goals would tend to develop the project into a way against the public interest. The pressure of the media often compels the government authority to intervene so as to redress the problems, which then tends to spill into disputes and cause transaction costs. The hard-fought dispute may give rise to adverse knock-on effects on the long-term trading relationship and the image of the system in society. Through a model built on the methodology of transaction cost economics, this research finds that most of the key problems encountered in the execution of private finance projects are originated from themisalignment of governance structures. The government authority should be made aware that, with no PFI system available for choice, the problems looks set to get worse.