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Risk in Transport Investments

Author

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  • André Palma
  • Nathalie Picard

    ()

  • Laetitia Andrieu

Abstract

We discuss how the standard Cost-Benefit Analysis should be modified in order to take risk (and uncertainty) into account. We propose different approaches used in finance (Value at Risk, Conditional Value at Risk, Downside Risk Measures, and Efficiency Ratio) as useful tools to model the impact of risk in project evaluation. After introducing the concepts, we show how they could be used in CBA and provide some simple examples to illustrate how such concepts can be applied to evaluate the desirability of a new project infrastructure.
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Suggested Citation

  • André Palma & Nathalie Picard & Laetitia Andrieu, 2012. "Risk in Transport Investments," Networks and Spatial Economics, Springer, vol. 12(2), pages 187-204, June.
  • Handle: RePEc:kap:netspa:v:12:y:2012:i:2:p:187-204
    DOI: 10.1007/s11067-009-9109-8
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    References listed on IDEAS

    as
    1. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-126, March.
    2. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 51(2), pages 209-223.
    3. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    4. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    5. Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-277, March.
    6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
    7. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
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    Citations

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    Cited by:

    1. André Palma & Robin Lindsey & Stef Proost, 2012. "Introduction to the Special Issue on Funding Transportation Infrastructure," Networks and Spatial Economics, Springer, vol. 12(2), pages 183-185, June.
    2. Laurino, Antonio & Beria, Paolo & Grimaldi, Raffaele, 2010. "Financing transport infrastrucure projects in Italy: a critical analysis of the main approaches," MPRA Paper 29140, University Library of Munich, Germany.
    3. Omid M. Rouhani & H. Oliver Gao, 2016. "Evaluating Various Road Ownership Structures and Potential Competition on an Urban Road Network," Networks and Spatial Economics, Springer, vol. 16(4), pages 1019-1042, December.
    4. David Watling & Giulio Cantarella, 2015. "Model Representation & Decision-Making in an Ever-Changing World: The Role of Stochastic Process Models of Transportation Systems," Networks and Spatial Economics, Springer, vol. 15(3), pages 843-882, September.

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