IDEAS home Printed from https://ideas.repec.org/a/spr/waterr/v24y2010i12p2881-2892.html
   My bibliography  Save this article

Real Options for Increasing Value in Industrial Water Infrastructure

Author

Listed:
  • Pongsak Suttinon
  • Seigo Nasu

Abstract

This paper presents a flexible approach that is real options to increase expected value in water infrastructure systems. Real options make an adaptable ability to respond the systems more effective to good opportunity and withdrawn unproductive situations from loss of investments in the future. The result of this approach is compared with traditional net present value in cases of with and without uncertainty to show expected values of investment of industrial water demand and supply schemes. It shows that real options in system can increase expected value of investment by reducing negative risks and increasing opportunities. An example of water infrastructure investment to support increasing industrial water demand demonstrates the use and results of this approach. Copyright Springer Science+Business Media B.V. 2010

Suggested Citation

  • Pongsak Suttinon & Seigo Nasu, 2010. "Real Options for Increasing Value in Industrial Water Infrastructure," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(12), pages 2881-2892, September.
    • Handle: RePEc:spr:waterr:v:24:y:2010:i:12:p:2881-2892
    DOI: 10.1007/s11269-010-9585-0
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11269-010-9585-0
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11269-010-9585-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Stewart C. Myers, 1984. "Finance Theory and Financial Strategy," Interfaces, INFORMS, vol. 14(1), pages 126-137, February.
    3. Myers, Stewart C & Turnbull, Stuart M, 1977. "Capital Budgeting and the Capital Asset Pricing Model: Good News and Bad News," Journal of Finance, American Finance Association, vol. 32(2), pages 321-333, May.
    4. Hans T.J. Smit, 2003. "Infrastructure Investment as a Real Options Game: The Case of European Airport Expansion," Financial Management, Financial Management Association, vol. 32(4), Winter.
    5. Rose, Simon, 1998. "Valuation of Interacting Real Options in a Tollroad Infrastructure Project," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 711-723.
    6. Anastasios Michailidis & Konstadinos Mattas, 2007. "Using Real Options Theory to Irrigation Dam Investment Analysis: An Application of Binomial Option Pricing Model," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 21(10), pages 1717-1733, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Siddiqui, Afzal & Takashima, Ryuta, 2012. "Capacity switching options under rivalry and uncertainty," European Journal of Operational Research, Elsevier, vol. 222(3), pages 583-595.
    2. Byungil Kim & Kyle Anderson & SangHyun Lee & Hyoungkwan Kim, 2014. "A Real Option Perspective to Value the Multi-Stage Construction of Rainwater Harvesting Systems Reusing Septic Tank," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 28(8), pages 2279-2291, June.
    3. Pongsak Suttinon & Seigo Nasu & Takeo Ihara & Nattakorn Bongochgetsakul & Kotomi Uemoto, 2013. "Water Resources Management In Shikoku Region By Inter-Regional Input–Output Table," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 25(2), pages 107-127, July.
    4. Taeil Park & Byungil Kim & Hyoungkwan Kim, 2012. "Impact of Deterioration and Negotiation on Sewer System O&M Contracts from the Real Option Perspective," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(10), pages 2973-2989, August.
    5. Taeil Park & Changyoon Kim & Hyoungkwan Kim, 2014. "Valuation of Drainage Infrastructure Improvement Under Climate Change Using Real Options," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 28(2), pages 445-457, January.
    6. Gabriela Cristina Ribeiro Pacheco & Marcus André Siqueira Campos, 2019. "Real Options Analysis as an Economic Evaluation Method for Rainwater Harvesting Systems," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(12), pages 4401-4415, September.
    7. Christine Heumesser & Sabine Fuss & Jana Szolgayová & Franziska Strauss & Erwin Schmid, 2012. "Investment in Irrigation Systems under Precipitation Uncertainty," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(11), pages 3113-3137, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Engelen, Peter-Jan & Kool, Clemens & Li, Ye, 2016. "A barrier options approach to modeling project failure: The case of hydrogen fuel infrastructure," Resource and Energy Economics, Elsevier, vol. 43(C), pages 33-56.
    2. Fan, Ying & Zhu, Lei, 2010. "A real options based model and its application to China's overseas oil investment decisions," Energy Economics, Elsevier, vol. 32(3), pages 627-637, May.
    3. Tatiana Ponomarenko & Eugene Marin & Sergey Galevskiy, 2022. "Economic Evaluation of Oil and Gas Projects: Justification of Engineering Solutions in the Implementation of Field Development Projects," Energies, MDPI, vol. 15(9), pages 1-22, April.
    4. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    5. Elizabeth Krauter & Herbert Kimura & Leonardo Fernando Cruz Basso, 2004. "Criação De Valor Através Da Estratégia De Procrastinação," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 092, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Jeffrey J. Reuer & Tony W. Tong, 2007. "Corporate investments and growth options," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 863-877.
    7. Madlener, Reinhard & Stoverink, Simon, 2012. "Power plant investments in the Turkish electricity sector: A real options approach taking into account market liberalization," Applied Energy, Elsevier, vol. 97(C), pages 124-134.
    8. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    9. Ali Naef Mohammad, 2016. "Valuation Tools for Determining the Value of Assets: A Literature Review," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 63-72, October.
    10. Caren Sureth, 2002. "Partially Irreversible Investment Decisions and Taxation under Uncertainty: A Real Option Approach," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 185-221, May.
    11. Pringles, Rolando & Olsina, Fernando & Garcés, Francisco, 2014. "Designing regulatory frameworks for merchant transmission investments by real options analysis," Energy Policy, Elsevier, vol. 67(C), pages 272-280.
    12. James E. Smith, 2005. "Alternative Approaches for Solving Real-Options Problems," Decision Analysis, INFORMS, vol. 2(2), pages 89-102, June.
    13. Schachter, J.A. & Mancarella, P., 2016. "A critical review of Real Options thinking for valuing investment flexibility in Smart Grids and low carbon energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 261-271.
    14. Li, Yong & James, Barclay & Madhavan, Ravi & Mahoney, Joseph T., 2006. "Real Options: Taking Stock and Looking Ahead," Working Papers 06-0114, University of Illinois at Urbana-Champaign, College of Business.
    15. Lindsey, Robin & de Palma, André, 2014. "Cost recovery from congestion tolls with long-run uncertainty," Economics of Transportation, Elsevier, vol. 3(2), pages 119-132.
    16. Balliauw, Matteo & Onghena, Evy, 2020. "Expanding airport capacity of cities under uncertainty: Strategies to mitigate congestion," Journal of Air Transport Management, Elsevier, vol. 84(C).
    17. Onno Lint & Enrico Pennings & Martin Natter, 1999. "Optionsmanagement in F&E: Eine Fallstudie," Schmalenbach Journal of Business Research, Springer, vol. 51(10), pages 990-1006, October.
    18. Gordon Briest & Elmar Lukas & Sascha H. Mölls & Timo Willershausen, 2020. "Innovation speed under uncertainty and competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1517-1527, December.
    19. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Capital Structure Theory: Past, Present, Future," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 9-50, Springer.
    20. Driouchi, Tarik & Leseure, Michel & Bennett, David, 2009. "A robustness framework for monitoring real options under uncertainty," Omega, Elsevier, vol. 37(3), pages 698-710, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:waterr:v:24:y:2010:i:12:p:2881-2892. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.