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Valuation of strategic network flexibility in development of toll road projects

Author

Listed:
  • Ivan Damnjanovic
  • Jennifer Duthie
  • S. Travis Waller

Abstract

A reliable, cost-effective and safe transportation system is essential to economic growth. To keep pace with demands for network capacity, revenue-generating projects are increasingly being used to complement the current procurement practices and lessen the pressure on public finances. In such transportation networks where there exists a mix of free access links and links with user fees, network interconnectivity is an important component of project valuation. A bilevel stochastic recourse model for valuating network flexibility is formulated. A key component of the model is consideration of network-based managerial flexibility in context of the upper level project valuation objective and the lower level network user equilibrium solution under demand uncertainty. The results from a test network, for which a closed form solution is possible, indicate that the value of network flexibility directly depends on initial network conditions, variance in future travel demand and toll pricing decisions.

Suggested Citation

  • Ivan Damnjanovic & Jennifer Duthie & S. Travis Waller, 2008. "Valuation of strategic network flexibility in development of toll road projects," Construction Management and Economics, Taylor & Francis Journals, vol. 26(9), pages 979-990.
    • Handle: RePEc:taf:conmgt:v:26:y:2008:i:9:p:979-990
    DOI: 10.1080/01446190802272707
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    Citations

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    Cited by:

    1. Yu-Lin Huang & Chai-Chi Pi, 2009. "Valuation of multi-stage BOT projects involving dedicated asset investments: a sequential compound option approach," Construction Management and Economics, Taylor & Francis Journals, vol. 27(7), pages 653-666.
    2. Chow, Joseph Y.J. & Regan, Amelia C., 2011. "Network-based real option models," Transportation Research Part B: Methodological, Elsevier, vol. 45(4), pages 682-695, May.
    3. Joseph Y. J. Chow & Amelia C. Regan, 2011. "Real Option Pricing of Network Design Investments," Transportation Science, INFORMS, vol. 45(1), pages 50-63, February.
    4. Yu-Lin Huang & Tsen-Chin Lin, 2023. "Compound deferrable options for the valuation of multi-stage infrastructure investment projects," Construction Management and Economics, Taylor & Francis Journals, vol. 41(8), pages 670-686, August.

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