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Risk in Transport investments

  • André de Palma

    ()

    (THEMA,University of Cergy-Pontoise,and ENPC)

  • Nathalie Picard

    (THEMA,University of Cergy-Pontoise,and INED)

  • Laetitia Andrieu

    (ENPC)

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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File URL: http://www.u-cergy.fr/thema/repec/2007-22.pdf
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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-22.

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Date of creation: 2007
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Handle: RePEc:ema:worpap:2007-22
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  1. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
  2. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
  3. 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, June.
  4. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  5. 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.
  6. Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March.
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