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Brandao, L E T and Saraiva, E (2008) The option value of government guarantees in infrastructure projects. Construction Management and Economics, 26(11), 80.

  • Type: Journal Article
  • Keywords: real options; infrastructure projects; toll roads; government guarantees; concessions
  • ISBN/ISSN: 0144-6193
  • URL: https://doi.org/10.1080/01446190802428051
  • Abstract:
    The participation of private capital in public infrastructure investment projects has been sought by many governments who perceive this as a way to overcome budgetary constraints and foster economic growth. For some types of projects, this investment may require government participation in the form of project guarantees in order to reduce the risk to the private investor, and as a consequence, the government assumes a contingent liability which may have significant future budgetary impacts. We present a minimum traffic guarantee (MTG) real options model that differs from most of the literature in the field by using market data to determine stochastic project parameters. This model can be used to assess the value of these guarantees, allows the government to analyse the cost-benefit of each level of support, and proposes an alternative to limit the exposure of the government while still maintaining the benefits to the private investor. We apply this model to the projected 1000 mile long BR-163 toll road that will link the Brazilian Midwest to the Amazon River. We conclude that the use of public–private partnerships (PPP) with guarantees and caps on total government outlays can be modelled effectively using option pricing methods and can be a solution to attract private investment to high risk public infrastructure projects.

Ding, Z and Ng, F (2008) A new way of developing semantic differential scales with personal construct theory. Construction Management and Economics, 26(11), 26.

Doloi, H (2008) Analysing the novated design and construct contract from the client's, design team's and contractor's perspectives. Construction Management and Economics, 26(11), 96.

Forbes, D, Smith, S and Horner, M (2008) Tools for selecting appropriate risk management techniques in the built environment. Construction Management and Economics, 26(11), 50.

Kheni, N A, Dainty, A R J and Gibb, A (2008) Health and safety management in developing countries: a study of construction SMEs in Ghana. Construction Management and Economics, 26(11), 69.

Kofoworola, O F and Gheewala, S (2008) An input-output analysis of Thailand's construction sector. Construction Management and Economics, 26(11), 40.

Nasirzadeh, F, Afshar, A, Khanzadi, M and Howick, S (2008) Integrating system dynamics and fuzzy logic modelling for construction risk management. Construction Management and Economics, 26(11), 212.

Raiden, A B, Dainty, A R J and Neale, R H (2008) Understanding employee resourcing in construction organizations. Construction Management and Economics, 26(11), 43.

Raisbeck, P (2008) Perceptions of architectural design and project risk: understanding the architects' role in a PPP project. Construction Management and Economics, 26(11), 57.