An Evaluation of Real Options Approach in Public-Private Partnerships

Abstract

Public-private partnerships (PPPs) projects often face complex decisions with incomplete information, due to long contractual duration and involvement of multiple parties having conflict interests. Real options analysis (ROA), as an effective tool for strategic risk management, has potential to promote better PPPs realization. Although real options (ROs) have been used in PPPs projects to model incentives such as subsides and guarantees, forms of PPPs are diverse. Each form has a unique contractual process, a different degree of private sector involvement, and sources of uncertainty. No RO model is universally effective for all forms of PPPs. This paper assesses the contractual features and risks of major PPP forms and accordingly, proposes a general framework of selecting incentive-type RO models for PPPs projects.

Meeting Name

62nd IIE Annual Conference and Expo (2012: May 19-23, Orlando, FL)

Department(s)

Engineering Management and Systems Engineering

Keywords and Phrases

Incentives; Infrastructure Projects; Public-Private Partnership; Real Options; Risk Management; Exhibitions; Risk Assessment; Incomplete Information; Private Sector Involvements; Sources Of Uncertainty; Mergers And Acquisitions

Document Type

Article - Conference proceedings

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2012 Institute of Industrial Engineers (IIE), All rights reserved.

Publication Date

01 May 2012

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