Government agencies are becoming increasingly involved in the process of
providing investment supports to attract foreign direct investment (FDI). This paper
focuses on the problem of how best to structure the investment supports in the
context of the hotel industry. The scenario analyzed has four players-the govern
ment sponsor, the local development agency, the hotel enterprise, and the private
financier. Five different types of investment supports are analyzed in the specific
context of the large hotel and resort industry- grants, subsidies for infrastructure
development, taxconcessions, loans, and interest subsidies. In each case, the effect
of the cascading principal-agent relationships are assessed in the strategic context.
It is shown that in some cases, governments may prefer support schemes that
appear to be more expensive, but have better incentive or risk-sharing implications.
The various alternatives may also be combined so as to carefully calibrate the risk
borne by the hotel developer, the private lender, and the state.
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