Optimal subsidies and guarantees in public-private partnerships

• Type: Article in International Scientific Journal
• Date: 2012

Authors

Armada, Manuel R (Author) Other; Paulo Jorge Pereira (Author) FEP; Artur J. Rodrigues (Author) Other

Journal

Title: European Journal of Finance

Vol. 18 No. 5

Pages: 469-495

ISSN: 1351-847X

Publisher: Taylor & Francis

Indexing

ISI Web of Knowledge - 26 Citations

ISI Web of Science

Scopus - 30 Citations

Scientific classification

FOS: Social sciences > Economics and Business

Other information

Authenticus ID: P-002-GAR

DOI: 10.1080/1351847x.2011.639789

Abstract (EN): In this paper, we analyse how certain subsidies and guarantees given to private firms in public-private partnerships should be optimally arranged to promote immediate investment in a real options framework. We show how an investment subsidy, a revenue subsidy, a minimum demand guarantee, and a rescue option could be optimally arranged to induce immediate investment, compensating for the value of the option to defer. These four types of incentives produce significantly different results when we compare the value of the project after the incentive structure is devised and also when we compare the timing of the resulting cash flows.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 27