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Sharing Risk Through Concession Contracts

In this paper we model concession contracts between a public and a private party, under dynamic uncertainty arising both from the volatility of the cash flow generated by the project and by the strategic behaviour of the two parties. Under these conditions we derive three notions of equilibrium price and apply the model to a case study for one of the most important concession contracts in Italy.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 166.

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Length: 16 pages
Date of creation: 28 May 2010
Date of revision: 28 May 2010
Handle: RePEc:rtv:ceisrp:166
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  1. Eduardo S. Schwartz, 2004. "Patents and R&D as Real Options," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 33(1), pages 23-54, 02.
  2. John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
  3. De Reyck, Bert & Degraeve, Zeger & Vandenborre, Roger, 2008. "Project options valuation with net present value and decision tree analysis," European Journal of Operational Research, Elsevier, vol. 184(1), pages 341-355, January.
  4. Giuseppe Pennisi & Pasquale L. Scandizzo, 2006. "Economic Evaluation in the age of Uncertainty," CEIS Research Paper 86, Tor Vergata University, CEIS.
  5. John C. Harsanyi, 1968. "Games with Incomplete Information Played by "Bayesian" Players Part II. Bayesian Equilibrium Points," Management Science, INFORMS, vol. 14(5), pages 320-334, January.
  6. Morck, Randall & Schwartz, Eduardo & Stangeland, David, 1989. "The Valuation of Forestry Resources under Stochastic Prices and Inventories," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 473-487, December.
  7. Eric Maskin, 2004. "The Unity of Auction Theory: Paul Milgrom's Masterclass," Economics Working Papers 0044, Institute for Advanced Study, School of Social Science.
  8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 06-2016.
  9. Robert S. Pindyck, 1984. "Uncertainty in the Theory of Renewable Resource Markets," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 289-303.
  10. Pasquale L. Scandizzo & Marco Ventura, 2006. "Bids for the UMTS system: An empirical evaluation of the Italian case," CEIS Research Paper 88, Tor Vergata University, CEIS.
  11. Lionel Thomas & Jean-Christophe Poudou & Manh Nguyen Hung, 2006. "Optimal resource extraction contract with adverse selection," Post-Print hal-00448793, HAL.
  12. Thomas Nagel & Margarethe Rammerstorfer, 2009. "Modeling investment behavior under price cap regulation," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 17(2), pages 111-129, June.
  13. Clark, Ephraim & Easaw, Joshy Z., 2007. "Optimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain," European Journal of Operational Research, Elsevier, vol. 178(2), pages 595-602, April.
  14. Michele Moretto & Chiara D’Alpaos, 2004. "The Value of Flexibility in the Italian Water Service Sector: A Real Option Analysis," Working Papers 2004.140, Fondazione Eni Enrico Mattei.
  15. Keswani, Aneel & Shackleton, Mark B., 2006. "How real option disinvestment flexibility augments project NPV," European Journal of Operational Research, Elsevier, vol. 168(1), pages 240-252, January.
  16. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
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