Ho, S-P (2001) Real options and game theoretic valuation, financing and tendering for investments on build-operate-transfer projects. PhD thesis, University of Illinois at Urbana-Champaign, USA.
Abstract
Privatization has been recognized as an approach to solving the problem for governments in funding public works. The major technique applied in infrastructure privatization is non-recourse project financing, including the BOT (Build-Operate-Transfer) approach, a major scheme in infrastructure privatization practice. BOT is the marriage of public and private sector interests and is a win-win solution if successfully implemented. A BOT project has to demonstrate its financial and technical viability before it is undertaken. While it is relatively easy to demonstrate a projects technical viability, to evaluate a BOT project's financial viability is complex and challenging, mainly because of the uncertainties involved due to the scale, long concession period, and complexity of a BOT project. The problem of evaluating financial viability is further complicated by the fact that different parties in a BOT project have different perspectives. The developer will focus not only on the project profitability and cost, but also on the investment's side benefit, such as construction contract profit. For a government, since it is politically costly if a BOT project fails, the government's major concern falls on the project profitability and cost only. The two different perspectives may induce complicated interactions between the developer and government during the tendering or project procurement process. Built upon modern option pricing theory and game theory, this thesis presents a quantitative BOT model that can dynamically evaluate the value of a BOT investment from the perspectives of the developer and government, and determine the BOT investment's developing decisions. By incorporating with signaling game analysis, the BOT model examines the BOT bidding strategy, valid signals of a developer's commitments and the effectiveness of the government BOT policies. Most importantly, the model considers the characteristics of a BOT project and analyzes the BOT problems more realistically. The model may provide the potential major BOT developers/contractors and other relevant participants a new perspective in the decision making process.
| Item Type: | Thesis (Doctoral) |
|---|---|
| Thesis advisor: | Liu, L Y |
| Uncontrolled Keywords: | complexity; private sector; real options; game theory; concession; bidding; build-operate-transfer; decision making; financing; funding; pricing; privatization; tendering; government; investment; developer |
| Index terms: | real option, interaction, privatization, option, public work, funding, construction contract, profitability, effectiveness, build-operate-transfer, private sector, financial viability, decision-making process, falls, concession period, pricing, project procurement, bidding, financing, complexity, decision-making, strategy, commitment, profit, game theory |
| Subjects: | infrastructure engineering, performance management, management, health risk and incident analysis, contract structure, behavioral psychology, systems engineering, industry analysis, decision analysis, contract type, decision models, economic analysis, business management, bidding, contractual arrangements, psychology |
| Topics: | Business Strategy, Research Practice, Organizational Design, Health and Safety, Engineering Principles, Risk Management, Procurement, Quality Management |
| Descriptive scope: | 3 PCT |
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