System Dynamics Models for the Valuation of Real Options in P3 Concession Project Agreements
Publication: Journal of Infrastructure Systems
Volume 24, Issue 1
Abstract
Public-private partnerships (P3) are increasingly being pursued for infrastructure procurement because of their ability to alleviate pressure on government budgets, promote innovation, and implement new technologies. These types of contracts tend to be long term and often need to account for future yet-to-be-seen variables that potentially impact the feasibility of this procurement method. This is especially true when the P3 exists within a portfolio of competing assets across transportation infrastructure systems. The current research presents a system dynamics model that is used to analyze the complexity of a transportation infrastructure asset procured through a P3 within such a portfolio. An illustrative case demonstrates how discrete and continuous events potentially impact the successful procurement of infrastructure within a portfolio of competing assets comprising a regional transportation system. This paper contributes to the existing body of knowledge by demonstrating how a system dynamics model can simulate the real-world causal relationships that impact the procurement of infrastructure through P3s. The system dynamics model is used for the valuation of real options in order to promote public initiatives, encourage private participation and enhance the economic sustainability of P3s.
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Acknowledgments
The writers thank Ethan Britland of the Massachusetts Department of Transportation and Mark Manley, CFA of Black and Veatch’s Management Consulting Division, for volunteering their time, experience, knowledge and willingness to participate in the current research. The authors also thank Ekaterina Atanasova, M.S. graduate in Civil and Environmental Engineering from Worcester Polytechnic Institute, for her research efforts and contribution in developing this manuscript.
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Information & Authors
Information
Published In
Journal of Infrastructure Systems
Volume 24 • Issue 1 • March 2018
Copyright
©2017 American Society of Civil Engineers.
History
Received: Mar 31, 2017
Accepted: Jul 31, 2017
Published online: Dec 13, 2017
Published in print: Mar 1, 2018
Discussion open until: May 13, 2018
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