The Real Option Value of Renegotiation in Public–Private Partnerships

Xiong, Wei; Zhang, Xueqing

doi:10.1061/(asce)co.1943-7862.0001130

Cited by 68 publications

(26 citation statements)

References 44 publications

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“…Based on this notion, tenderers can compete and their performance can be easily measured and monitored (Murphy, ). Flexibility is the ability of the contract to address uncertainties in the long‐term concession period, which includes contingency arrangements and contract renegotiations (Xiong & Zhang, ).…”

Section: The Theory Of Ppp Governancementioning

confidence: 99%

Governing public–private partnerships: A systematic review of case study literature

et al. 2018

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Governance plays a critical role in determining the success and failure of public–private partnerships (PPPs). We conducted a systematic review of case study literature on PPP governance and developed a governance framework consisting of 21 issues in four groups: institutional, organizational, contractual, and managerial. Then, we investigate the dynamics of governance issues, including the relative importance, interrelationships, and connections with PPP success and failure. Results suggest that PPPs should emphasize cooperation, trust, communication, capability, risk allocation and sharing, competition, and transparency in their governance. We also found that the governance practice of emphasizing dominant and direct factors and ignoring recessive and indirect ones has hindered PPPs’ success.

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Section: The Theory Of Ppp Governancementioning

confidence: 99%

Governing public–private partnerships: A systematic review of case study literature

et al. 2018

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“…In the past decade, real options theory has been used to conduct research on the investment decision-making of PPP projects. Most of this research has focused on evaluation of the value of guarantee options (Almassi, McCabe, & Thompson, 2013;Mirzadeh & Birgisson, 2015;Wibowo & Kochendoerfer, 2011), while some other scholars have considered the real options related to project performance, such as negotiation and early termination (Huang & Pi, 2013;Liu & Cheah, 2009;Xiong & Zhang, 2016). Khanzadi, Nasirzadeh, and Alipour (2012) Waste-to-energy incineration projects Specific time Song, Song, and Zhang (2015) NPV + discrete stochastic process…”

Section: State-of-the-art Of Concession Period Determination Methodsmentioning

confidence: 99%

Concession Period Determination for PPP Retirement Village

Liu

Jin

Xie

et al. 2018

International Journal of Strategic Property Management

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Demand for the construction of retirement villages is increasing with the worldwide growth in ageing populations. However, the development of retirement villages can be impeded by many factors, such as limited available land and high investment costs. Public–private partnership (PPP) as an alternative financing mechanism has been widely applied in the construction of public infrastructure projects and may provide new funding sources for building retirement villages. By applying PPP to the construction of retirement villages, the independent living requirements of seniors can be met and the financial difficulty of the construction of retirement villages can be resolved. Similar to other PPP projects, when retirement villages are constructed under a PPP process, the concession period is a key decision variable in relation to the success of the project. The concession period is stated in the project contract between the government and private investors, and stipulates the date when the project ownership and operation are transferred from the private investor back to the government. The government should take detailed information into consideration at the initial project stage when determining the concession period. This paper proposes PPP as a new procurement method to be applied to the construction of rental retirement villages and develops a concession period determination process for PPP retirement village projects with consideration of real options, focusing on the option to defer. An empirical example with alternative scales, which is developed from an existing retirement village in Geelong, Australia, is used to numerically verify the process and the impacts of key variables on the concession period. The determination process provides an alternative tool for governments to design the concession period before the tendering stage and will benefit the development of industries associated with services for the ageing population. This process can also be applied to the construction of other financially non-viable PPP projects such as social housing.

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“…In many studies, lattice is used for a real options approach to assess the value of a real asset (Xiong and Zhang, 2016). Lattice is a numerical method and it is used for a discrete time model.…”

Section: Figure 11: Product Life Cyclementioning

confidence: 99%

“…Lattice is a numerical method, discrete-time model, for the valuation of derivatives when exact formulas are not available. In many studies, lattice is used for a real options approach to assess the value of a real asset (Xiong and Zhang, 2016). Lattice is basically used where exercise can take place at any time up to maturity, while a continuous time model such as Black and Scholes (1973) allows valuation of European options, where exercise might take place only on the maturity date.…”

Section: Lattice Approachmentioning

confidence: 99%

The valuation of product introduction time strategies using a real options approach

Yazdi¹

2021

Preprint

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In today’s economy, new technologies rapidly emerge in the durable goods market. Therefore, it is paramount for manufacturing companies to optimize product introduction time for their second-generation product (SGP), which is an upcoming product in the production line, when profitability is at stake. The main factors affecting this timing are technology advancements and changes in customer tastes, which make determining an optimal introduction time for a product a challenging task. The main goal of this research is to find the optimal product introduction time for the SGP that maximizes the net present value (NPV) over a given period while product life cycle (PLC), pricing, and advertising are explicitly being taken into consideration. Demand for each product contains two regimes life cycle, and each regime is defined by a geometric Brownian motion (GBM). Each GBM has a drift rate and volatility. Moreover, there is a correlation between different regimes for different products. Correlated GBMs are discretized using a lattice approach. The Bass model is used to determine demand parameters including drift, volatility, and correlation, while dynamic programming is used to optimize NPV. Flexibilities, such as expansion, contraction, and switching, are identified between two products. Examples are provided to show the applicability of the developed models. Accordingly, the results show as the drift rate, volatility, and initial demand for a first-generation product (FGP) increase, the SGP introduction time has to be delayed. Furthermore, results demonstrate that in decreasing pricing policy, the SGP has to be introduced as early as the FGP. In increasing-decreasing pricing policy, as the increasing pricing rate is increasing, the SGP introduction time is delayed. When the advertising budget percentage increases, the NPV increases up to a certain level and then it will be saturated. Major contributions of this thesis are as follows: first, investigating the product introduction time by integrating marketing and manufacturing aspects; second, developing a model to incorporate the flexibility and production cost of the system for determining the optimal product introduction time. Third, the value of the product introduction time is expressed in terms of dollar value and this would help managers to make decisions easily. The models developed in this research can be used as practical tools for manufacturers to find the optimal product introduction time (PIT) and also the research can be used as a guideline to introduce the second-generation PIT.

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The Real Option Value of Renegotiation in Public–Private Partnerships

Cited by 68 publications

References 44 publications

Governing public–private partnerships: A systematic review of case study literature

Governing public–private partnerships: A systematic review of case study literature

Concession Period Determination for PPP Retirement Village

The valuation of product introduction time strategies using a real options approach

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