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Evaluation Of A Taxi Sector Reform: A Real Options Approach

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Author Info
Gerard Llobet ()
Meritxell Albertí ()
Ángel León () (CEMFI, Centro de Estudios Monetarios y Financieros)

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Abstract

This paper applies the real options methodology to estimate the impact of the restructuring measures in the taxi sector in Barcelona in 1995. These measures included among other things the establishment of a fixed price for the license as a way to reduce the uncertainty on the future performance of the sector. We construct a model that contains the uncertainty in income as well as costs of the taxi driver using both individual and aggregate data. We also consider the option to sell the license at each point in time. We show that such reform can increase the net surplus value for taxi drivers with respect to a liberalized market in this sector. We compute the surplus value as a result of this reform to be around € 80,000. This value is shown to be robust to an exhaustive sensitivity analysis.

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Paper provided by CEMFI in its series Working Papers with number wp2003_0312.

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Date of creation: Dec 2003
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Handle: RePEc:cmf:wpaper:wp2003_0312

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Related research
Keywords: License price; net surplus value; real options; Monte Carlo simulation; continuous-time model; model implementation.;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cairns, Robert D. & Liston-Heyes, Catherine, 1996. "Competition and regulation in the taxi industry," Journal of Public Economics, Elsevier, vol. 59(1), pages 1-15, January. [Downloadable!] (restricted)
  2. Bergstrom, A.R., 1984. "Continuous time stochastic models and issues of aggregation over time," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 20, pages 1145-1212 Elsevier. [Downloadable!] (restricted)
  3. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(2), pages 327-43. [Downloadable!] (restricted)
  4. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-73, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI. [Downloadable!]
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  2. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation And Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI. [Downloadable!]
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