Real Option Analysis on Investment Decision-Making of Rail Transit Projects Aiming to Ease Congestion

A growing number of cities in China are planning and preparing to construct rail transit projects. Under uncertain conditions, the presence of irreversibility and flexibility in rail transit investment makes its timing option valuable. This paper sets up an option value model based on population scale for evaluating the investment decision-making of rail transit projects in order to ease metropolitan congestion. The model reflects fare differences and rail transit's effect on congestion cost depending on population scale. Furthermore, the influence of uncertainty factors on investment decision-making is analyzed through a case study, which could provide a theoretical basis for government decision-making. Results show the option value increases with the rise in the volatility and growth rate of population and decreases with the increase in the proportion of fare differences to income.