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  • 标题:Value of investors’ escalation of commitment in PPP projects using real option thinking
  • 本地全文:下载
  • 作者:Ruolan GAO ; Jicai LIU
  • 期刊名称:International Journal of Strategic Property Management
  • 印刷版ISSN:1648-715X
  • 电子版ISSN:1648-9179
  • 出版年度:2020
  • 卷号:24
  • 期号:5
  • DOI:10.3846/ijspm.2020.13120
  • 语种:English
  • 出版社:Vilnius Gedinimas Technical University
  • 摘要:Escalation of commitment (EOC) is a common behavior among investors who receive negative feedback (NF) in public-private partnership (PPP) projects, and this behavior typically leads to sizable losses. Recognizing this, investors set a mental threshold and track investments for escalation. Once losses reach the threshold, investors will terminate the escalation behavior, namely, they will transfer projects to governments to obtain compensation or residual asset value. This paper analyzes the maximum amount of NF that investors can sustain based on a belief-adjustment model, followed by the analysis of the greatest loss degree. Then, a threshold model for EOC is constructed using real option thinking. Different from the usual judgment criteria of the traditional option method, the threshold is less than zero in the EOC scenario. The results show that the threshold correlates with the initial generative cognition, the sunk cost level, the degree of the government guarantee and investors’ behavioral preferences as well as with total investment and return on investment. These findings serve as a reference for governments to de-escalate investors’ commitment in PPP projects.
  • 关键词:public-private partnership project;escalation of commitment;real option theory;threshold;abandonment option;early termination pricing
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