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TitleOptimal subsidies and guarantees in public–private partnerships
Author(s)Armada, Manuel José da Rocha
Pereira, Paulo J.
Rodrigues, Artur
KeywordsOption to defer
Public-private partnerships
Early exercise
Issue date2012
PublisherTaylor and Francis
JournalThe European Journal of Finance
Abstract(s)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.
Publisher version
AccessRestricted access (UMinho)
Appears in Collections:NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica

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