Optimal investments of port authorities facing ambiguity on uncertain market demands

Hsiao-Chi Chen and Shi-Miin Liu

Transportation Research Part B: Methodological, 2024, vol. 179, issue C

Abstract: This study explores how two competing port authorities facing ambiguity about uncertain market demands determine their optimal investments. Using the Choquet expected utility function, the port authorities are categorized into four types: ambiguity-averse and risk-averse, ambiguity-neutral and risk-averse, ambiguity-averse and risk-neutral, and ambiguity-neutral and risk-neutral. Each type can reach equilibria through no-port investing, only-one-port investing, or both-port investing. Our findings indicate that considering ambiguity does not alter the types of equilibrium investments for port authorities, regardless of their risk aversion or neutrality. However, the emergence of equilibrium investments for each type is affected by the consideration of ambiguity. Specifically, when risk-neutral port authorities transition from ambiguity-neutral to ambiguity-averse, they will invest more (less) if they are optimistic (pessimistic) enough. Nevertheless, this relationship may not apply to risk-averse port authorities, as the magnitudes of the first to the fourth moments of probability distributions, which maximize and minimize the expected utility of ports, also impact their investment decisions. Importantly, our results hold true even when ports exhibit ambiguity-loving characteristics, possess distinct ambiguity or risk attitudes, consider Knight uncertainty, or compete in prices.

Keywords: Ambiguity-averse; Ambiguity-loving; Ambiguity-neutral; Demand uncertainty; Facility investment; Port authority; Risk-averse; Risk-neutral (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0191261523001819
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transb:v:179:y:2024:i:c:s0191261523001819

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.trb.2023.102856

Access Statistics for this article

Transportation Research Part B: Methodological is currently edited by Fred Mannering

More articles in Transportation Research Part B: Methodological from Elsevier
Bibliographic data for series maintained by Catherine Liu ().