Government guarantees and risk sharing in public-private partnerships
We study the interaction between a private firm and a government when they time an investment decision while in a public-private partnership. We use a real options framework and consider the degree of sharing in the cost of the investment and the risk in the operation of the project. The degree of sharing influences the investment timing and the project value. When the guarantee of the government is large and/or the cost sharing rate for the private firm is low, then the private firm-maximizing policy exercises the investment option earlier than the project value-maximizing policy.
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- Francis Ng & Hans Bjornsson, 2004. "Using real option and decision analysis to evaluate investments in the architecture, construction and engineering industry," Construction Management and Economics, Taylor & Francis Journals, vol. 22(5), pages 471-482.
- Hayne E. Leland., 1994.
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Research Program in Finance Working Papers
RPF-233, University of California at Berkeley.
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- Rose, Simon, 1998. "Valuation of Interacting Real Options in a Tollroad Infrastructure Project," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 711-723.
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