IDEAS home Printed from https://ideas.repec.org/a/eee/jaitra/v39y2014icp72-80.html
   My bibliography  Save this article

Maximizing the value for money of PPP arrangements through flexibility: An application to airports

Author

Listed:
  • Martins, José
  • Marques, Rui Cunha
  • Cruz, Carlos Oliveira

Abstract

The economic crisis in most developed countries is fostering the search for new models for infrastructure planning and management. There is great uncertainty surrounding these investments and, therefore, it is necessary to capture the latent value from infrastructure projects. The principle is that the project should have the necessary flexibility to adapt to future changes, i.e., at the design stage it is necessary to incorporate flexible options that would allow the infrastructure and/or the service to be adapted to changes.

Suggested Citation

  • Martins, José & Marques, Rui Cunha & Cruz, Carlos Oliveira, 2014. "Maximizing the value for money of PPP arrangements through flexibility: An application to airports," Journal of Air Transport Management, Elsevier, vol. 39(C), pages 72-80.
  • Handle: RePEc:eee:jaitra:v:39:y:2014:i:c:p:72-80
    DOI: 10.1016/j.jairtraman.2014.04.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969699714000507
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jairtraman.2014.04.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marques, Rui Cunha, 2011. "Together or separately? The efficiency and market structure of Portuguese airports," Journal of Air Transport Management, Elsevier, vol. 17(2), pages 136-139.
    2. Frayer, Julia & Uludere, Nazli Z., 2001. "What Is It Worth? Application of Real Options Theory to the Valuation of Generation Assets," The Electricity Journal, Elsevier, vol. 14(8), pages 40-51, October.
    3. Martins, Ana Cravinho & Marques, Rui Cunha & Cruz, Carlos Oliveira, 2011. "Public-private partnerships for wind power generation: The Portuguese case," Energy Policy, Elsevier, vol. 39(1), pages 94-104, January.
    4. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    5. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
    6. Tsamboulas, D. & Verma, A. & Moraiti, P., 2013. "Transport infrastructure provision and operations: Why should governments choose private–public partnership?," Research in Transportation Economics, Elsevier, vol. 38(1), pages 122-127.
    7. Alexander Triantis, 2005. "Realizing the Potential of Real Options: Does Theory Meet Practice?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(2), pages 8-16, March.
    8. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-985, December.
    9. Octavio A. F. Tourinho., 1979. "The Option Value of Reserves of Natural Resources," Research Program in Finance Working Papers 94, University of California at Berkeley.
    10. Bednyagin, Denis & Gnansounou, Edgard, 2012. "Estimating spillover benefits of large R&D projects: Application of real options modelling approach to the case of thermonuclear fusion R&D programme," Energy Policy, Elsevier, vol. 41(C), pages 269-279.
    11. Alexander, Ian & Estache, Antonio & Oliveri, Adele, 2000. "A few things transport regulators should know about risk and the cost of capital," Utilities Policy, Elsevier, vol. 9(1), pages 1-13, March.
    12. Carr, Peter P, 1988. " The Valuation of Sequential Exchange Opportunities," Journal of Finance, American Finance Association, vol. 43(5), pages 1235-1256, December.
    13. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    14. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    15. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    16. Rioja, Felix K., 2003. "Filling potholes: macroeconomic effects of maintenance versus new investments in public infrastructure," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2281-2304, September.
    17. Teresa Curristine & Zsuzsanna Lonti & Isabelle Joumard, 2007. "Improving Public Sector Efficiency: Challenges and Opportunities," OECD Journal on Budgeting, OECD Publishing, vol. 7(1), pages 1-41.
    18. Franke, Markus & John, Florian, 2011. "What comes next after recession? – Airline industry scenarios and potential end games," Journal of Air Transport Management, Elsevier, vol. 17(1), pages 19-26.
    19. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    20. Lenos Trigeorgis, 1993. "Real Options and Interactions With Financial Flexibility," Financial Management, Financial Management Association, vol. 22(3), Fall.
    21. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    22. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-514, June.
    23. Morimoto, Risako, 2010. "Estimating the benefits of effectively and proactively maintaining infrastructure with the innovative Smart Infrastructure sensor system," Socio-Economic Planning Sciences, Elsevier, vol. 44(4), pages 247-257, December.
    24. International Monetary Fund, 2009. "The Effects of the Financial Crisison Public-Private Partnerships," IMF Working Papers 2009/144, International Monetary Fund.
    25. Xie, Feixue, 2009. "Managerial flexibility, uncertainty, and corporate investment: The real options effect," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 643-655, October.
    26. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    27. James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 479-508.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaodan Zheng & Jingfeng Yuan & Jiyue Guo & Mirosław J. Skibniewski & Sujun Zhao, 2018. "Influence of Relational Norms on User Interests in PPP Projects: Mediating Effect of Project Performance," Sustainability, MDPI, Open Access Journal, vol. 10(6), pages 1-19, June.
    2. Xiao, Yi-bin & Fu, Xiaowen & Oum, Tae H. & Yan, Jia, 2017. "Modeling airport capacity choice with real options," Transportation Research Part B: Methodological, Elsevier, vol. 100(C), pages 93-114.
    3. Jingfeng Yuan & Wenying Ji & Jiyue Guo & Mirosław J. Skibniewski, 2019. "Simulation-based dynamic adjustments of prices and subsidies for transportation PPP projects based on stakeholders’ satisfaction," Transportation, Springer, vol. 46(6), pages 2309-2345, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lander, Diane M. & Pinches, George E., 1998. "Challenges to the Practical Implementation of Modeling and Valuing Real Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 537-567.
    2. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    3. Schachter, J.A. & Mancarella, P., 2016. "A critical review of Real Options thinking for valuing investment flexibility in Smart Grids and low carbon energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 261-271.
    4. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    5. Lambrecht, Bart M., 2017. "Real options in finance," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 166-171.
    6. Akamatsu, Takashi & Nagae, Takeshi, 2011. "A network of options: Evaluating complex interdependent decisions under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 714-729, May.
    7. Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.
    8. Bolton, Patrick & Wang, Neng & Yang, Jinqiang, 2019. "Investment under uncertainty with financial constraints," Journal of Economic Theory, Elsevier, vol. 184(C).
    9. Marco Antonio Guimaraes Dias & Jose Paulo Teixeira, 2010. "Continuous-Time Option Games: Review of Models and Extensions," Multinational Finance Journal, Multinational Finance Journal, vol. 14(3-4), pages 219-254, September.
    10. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    11. Hunt, Richard A. & Song, Yue & Townsend, David M. & Stallkamp, Maximilian, 2021. "Internationalization of entrepreneurial firms: Leveraging real options reasoning through affordable loss logics," Journal of Business Research, Elsevier, vol. 133(C), pages 194-207.
    12. Bengtsson, Jens, 2001. "Manufacturing flexibility and real options: A review," International Journal of Production Economics, Elsevier, vol. 74(1-3), pages 213-224, December.
    13. Anastasios Michailidis & Konstadinos Mattas, 2007. "Using Real Options Theory to Irrigation Dam Investment Analysis: An Application of Binomial Option Pricing Model," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 21(10), pages 1717-1733, October.
    14. Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
    15. Caren Sureth, 2002. "Partially Irreversible Investment Decisions and Taxation under Uncertainty: A Real Option Approach," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 185-221, May.
    16. Liang, Zhaohui & Wang, Wei & Li, Shusheng, 2012. "Decomposition valuation of complex real options embedded in creative financial leases," Economic Modelling, Elsevier, vol. 29(6), pages 2627-2631.
    17. Collan, Mikael, 2004. "Giga-Investments: Modelling the Valuation of Very Large Industrial Real Investments," MPRA Paper 4328, University Library of Munich, Germany.
    18. Tang, Bao-Jun & Zhou, Hui-Ling & Chen, Hao & Wang, Kai & Cao, Hong, 2017. "Investment opportunity in China's overseas oil project: An empirical analysis based on real option approach," Energy Policy, Elsevier, vol. 105(C), pages 17-26.
    19. Ottoo, Richard E., 1998. "Valuation of Internal Growth Opportunities: The Case of a Biotechnology Company," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 615-633.
    20. Raffaele Oriani & Luigi Sereno, 2011. "Advanced Valuation Methods: The Real Options Approach," Chapters, in: Federico Munari & Raffaele Oriani (ed.), The Economic Valuation of Patents, chapter 6, Edward Elgar Publishing.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaitra:v:39:y:2014:i:c:p:72-80. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.