Park, T; Kim, B and Kim, H (2013) Real option approach to sharing privatization risk in underground infrastructures. Journal of Construction Engineering and Management, 139(6), pp. 685-693. ISSN 0733-9364
Abstract
Over the last two decades, more than 100 water and sewer systems have been sold or leased to private entities in the United States due to shortages in government funding. While privatization has allowed governments to relieve their financial difficulties, users have taken on such risks in the form of high rates and poor service. When compared to other infrastructures, water and sewer systems generate somewhat stable revenue. However, water and sewer systems are also characterized by the hardly predictable operation and maintenance (O&M) expenses. Such characteristics make it difficult to devise a proper contract that satisfies the interested parties, such as governments, private operators, and users. By investigating the deficiencies of previous privatization contracts, this study presents a real option-based contract model to ensure appropriate risk sharing between private entities and governments. Simulation results based on three different O&M expense scenarios (best, moderate, and worst) indicate that the proposed contract model would provide a win-win situation for all related parties.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | infrastructure; Monte Carlo simulation; negotiation; privatization; real option |
| Index terms: | sewer, real option, privatization, shortages, funding, underground infrastructure, Monte Carlo simulation, United States, operation and maintenance, negotiation, revenue |
| Subjects: | modelling and simulation, maintenance engineering, conflict resolution, infrastructure and transport systems, economic analysis, Geography |
| Topics: | Geographical Context, Business Strategy, Stakeholder Management, Engineering Principles, Research Practice |
| Descriptive scope: | 3 PCA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here