A real options framework for dealing with uncertainty in sustainable transport investments

Linda Salahaldin () and Thierry Granger
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Linda Salahaldin: IMT-BS - MMS - Département Management, Marketing et Stratégie - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]
Thierry Granger: Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we develop a real options framework that sets rules for investment decision in sustainable transport projects under both demand and costs uncertainties. First, we present the model we use to calculate the cost of transport externalities. Using stochastic analysis, we show how to maximize inter-generational utility by choosing the optimal time to invest. The method is implemented using a dynamic programming approach that gives, at each moment, the thresholds for demand and cost for which it is optimal to invest. We calculate the expected waiting time until investing and perform a sensitivity analysis to study the impact of the different parameters on the decision.

Keywords: Real optionssustainable transport; Population-growth; Uncertainty; Inter-generational utility (search for similar items in EconPapers)
Date: 2013-08-06
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Published in Asia-Pacific Journal of Operational Research, 2013, 30 (04), pp.1350002. ⟨10.1142/S0217595913500024⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04123973

DOI: 10.1142/S0217595913500024

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