To kill a real option – Incomplete contracts, real options and PPP
This paper is concerned with the implications of public–private partnership agreements for the execution of expansion options in road infrastructure. More specifically, it analyzes the expansion of an existing two-lane road in Sweden, and examines the real options created by an intermediate type of road with three lanes. Interpreting the results from real option analysis in the light of incomplete contract theory, this paper finds that external congestion costs might necessitate public ownership to ensure a social optimal outcome in public–private partnerships.
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Volume (Year): 46 (2012)
Issue (Month): 8 ()
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MIT Press Books,
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- 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.
- Alonso-Conde, Ana Belen & Brown, Christine & Rojo-Suarez, Javier, 2007. "Public private partnerships: Incentives, risk transfer and real options," Review of Financial Economics, Elsevier, vol. 16(4), pages 335-349.
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