IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v39y2018i2p171-179.html
   My bibliography  Save this article

An option pricing approach to optimal bidding in construction projects

Author

Listed:
  • João Adelino Ribeiro
  • Paulo J. Pereira
  • Elisio M. Brandão

Abstract

Reaching an optimal mark†up value in the context of construction projects' bidding competitions has been a research topic for more than 40 years. This paper aims to contribute to this debate by applying a real options approach. The proposed model has a pure theoretical nature and is based on a maximization problem, whose outcome is the optimal price, that is, the price that should be included in the bid proposal. The model is later extended to accommodate the existence of penalty costs if the selected bidder refuses to enter into contract. Results reached using a numerical example demonstrate that the optimal price is higher when penalty costs are considered.

Suggested Citation

  • João Adelino Ribeiro & Paulo J. Pereira & Elisio M. Brandão, 2018. "An option pricing approach to optimal bidding in construction projects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(2), pages 171-179, March.
    • Handle: RePEc:wly:mgtdec:v:39:y:2018:i:2:p:171-179
    DOI: 10.1002/mde.2878
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.2878
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.2878?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
    ---><---

    Citations

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


    Cited by:

    1. Ruozhen Qiu & Yue Yu & Minghe Sun, 2021. "Joint pricing and stocking decisions for a newsvendor problem with loss aversion and reference point effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 275-288, March.
    2. João Adelino Ribeiro & Paulo Jorge Pereira & Elisio Moreira Brandão, 2020. "A real options approach to optimal bidding in construction projects considering volume uncertainty," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(4), pages 631-640, June.

    More about this item

    Statistics

    Access and download statistics

    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:wly:mgtdec:v:39:y:2018:i:2:p:171-179. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    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.