IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-04817939.html
   My bibliography  Save this paper

Monetizing Positive Externalities to Mitigate the Infrastructure Underinvestment Problem

Author

Listed:
  • Hao Bai

    (University of Manchester [Manchester])

  • Alain Bensoussan

    (ICDRiA - International Center for Decision and Risk Analysis - UT Dallas - University of Texas at Dallas [Richardson])

  • Gordon Briest

    (OVGU - Otto-von-Guericke-Universität Magdeburg = Otto-von-Guericke University [Magdeburg])

  • Benoit Chevalier-Roignant

    (EM - EMLyon Business School)

Abstract

Many cities face challenges in financing their infrastructure. If a decision maker cannot capture all the benefits of its investment, there is a risk of underinvestment. Hong Kong's transit operator designed a scheme in which it not only receives fare revenues, but also participates in a property management business, exploiting the positive externalities of public transport on nearby property prices. We develop a stochastic Stackelberg game of timing to explore the rationale of this scheme. The underlying problem is nontrivial because the operator faces a two-dimensional optimal stopping problem that cannot be reduced by a change of numéraire. We determine the operator's optimal investment policy via the intermediation of a "penalized problem" and derive comparative statics. We determine the circumstances under which monetizing positive externalities effectively favors infrastructure investment. Other management problems have similar structures.

Suggested Citation

  • Hao Bai & Alain Bensoussan & Gordon Briest & Benoit Chevalier-Roignant, 2024. "Monetizing Positive Externalities to Mitigate the Infrastructure Underinvestment Problem," Post-Print hal-04817939, HAL.
    • Handle: RePEc:hal:journl:hal-04817939
    DOI: 10.1287/opre.2023.0075
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

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


    Cited by:

    1. Chevalier-Roignant, Benoît, 2024. "When and how should an incumbent respond to a potentially disruptive event?," Journal of Economic Dynamics and Control, Elsevier, vol. 168(C).

    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:hal:journl:hal-04817939. 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.