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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)

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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File URL: http://www.cemfi.es/ftp/wp/0312.pdf
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Bibliographic Info

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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References

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  1. 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.
  2. 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.
  3. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
  4. 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.
  5. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
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Cited by:
  1. Elizalde, Abel & Repullo, Rafael, 2004. "Economic and Regulatory Capital: What is the Difference?," CEPR Discussion Papers 4770, C.E.P.R. Discussion Papers.
  2. Aleix Calveras & Juan José Ganuza & Gerard Llobet, 2005. "Regulation and opportunism: How much activism do we need?," Economics Working Papers 935, Department of Economics and Business, Universitat Pompeu Fabra.

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