A Flexible Franchise Fee Scheme in a BOT Project
The relationship between a government and a franchise firm in a build-operate-transfer (BOT) project is one that is wrought with incentive problems. It is well known that a contingent payment structure can help alleviate moral hazard problems. This paper provides a flexible franchise fee scheme from the perspective of a government which can charge a sufficient franchise fee and provide enough incentive for a private firm in a BOT project. This flexible franchise fee structure has option-like properties. A pricing model is derived in this paper to price this flexible franchise fee scheme. The closed-form pricing model that I have provided in this paper can help evaluate the effect of a flexible franchise fee on the performance of BOT projects. A numerical analysis shows that the proposed flexible franchise fee scheme is especially suitable for BOT projects with long investment horizons and revenue uncertainty.
Volume (Year): 15 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA|
Web page: http://www.asres.org/
|Order Information:|| Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA|
Web: http://www.asres.org/ Email:
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.:
- Bruce, Donald & Santore, Rudy, 2006. "On optimal real estate commissions," Journal of Housing Economics, Elsevier, vol. 15(2), pages 156-166, June.
- Anglin, Paul M & Arnott, Richard, 1991. "Residential Real Estate Brokerage as a Principal-Agent Problem," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 99-125, June.
When requesting a correction, please mention this item's handle: RePEc:ire:issued:v:15:n:01:2012:p:127-139. 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: (IRER Secretary Office/Webmaster)
If references are entirely missing, you can add them using this form.