EARLY ABANDONMENT OF A MOTORWAY CONCESSION CONTRACT. VALUE OF THE ABANDONMENT OPTION AND PROBABILITY OF ABANDONMENT UNDER THE REAL OPTIONS FRAMEWORK

Investments in transport infrastructure projects, and specifically in toll motorway concessions, are associated with a high degree of uncertainty and require a large amount of resources. The estimate of the net present value of the project involves discounting future revenues at a given discount rat...

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Bibliographic Details
Published in:Rivista internazionale di economia dei trasporti 2016-11, Vol.43 (4), p.475-491
Main Authors: Galera, Antonio L. Lara, Soliño, Antonio Sánchez, Aires, Rubén A. Galindo
Format: Article
Language:English
Subjects:
Acquiescence
Discounting
Economic models
Infrastructure
Present value
Public administration
Real options analysis
Roads & highways
Transportation
Uncertainty
Valuation
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Summary:Investments in transport infrastructure projects, and specifically in toll motorway concessions, are associated with a high degree of uncertainty and require a large amount of resources. The estimate of the net present value of the project involves discounting future revenues at a given discount rate, which can lead to mistaken results when the project implies a certain degree of flexibility. In such cases, methods for the valuation of the investments based on the real options theory allow to estimate the value of projects in an uncertain environment, adding the value of the administrative, operative and managerial flexibility to the strictly financial valuation of the traditional methods. In this paper, the options theory has been applied to the specific case of the abandonment option in a toll motorway concession project. For this purpose, the traffic of the motorway has been considered as the underlying asset to carry out a valuation based on the analogy with the financial options. This methodology is then applied to a case study of a real concession in Madrid, Spain. The results show a significant value of the abandonment option that represents an implicit aid from the Public Administration to the project.
ISSN:0303-5247
1724-2185
DOI:10.19272/201606704004