BOT Contracts For Franchising With Real Option Value

BOT(Build Operate Transfer)model is an important part of the public-private partnership of the PPP.The use of BOT mode for highway construction has special advantages in reducing government financial pressure,improving efficiency of investment management,introducing advanced technology and promoting technological innovation.In recent years,China's investment in highway and other infrastructure construction has been increasing,and the application of BOT mode has become more and more extensive.Total cost of highway construction project is high,the construction and operation cycle is long.In many parts,the construction fund problem becomes the"bottleneck" restricting the development of the region for a long time.In other areas,the planned highway capacity do not match the initial toll,but the traffic will be large in the later period.The staging construction investment mechanism is obviously the solution to these areas,Staging construction is a common mode used in the construction of highway projects.Toll roads with staging construction are of much uncertainty can be delayed.The choice of future investment opportunities is a kind of real options,which is a kind of intangible assets,including option to defer and investment growth options.To discuss the influence of real options on BOT contract decision variables,solve the optimal adjustment scheme and analyze how real options affect the optimal contract adjustment scheme.First,introduce the real options value into the highway BOT contract to build a toll road investment decision model with the goal of social benefit maximization.By comparing the contract decision variables not considering real options value and the decision variables considering real options value,the influence of the real options on BOT contract decision variables is clear.Then,contract adjustment model is established using multi-objective decision theory,the dynamic adjustment scheme of BOT contract under different traffic demand states is obtained by using the properties of Pareto optimal solution.Meantime,the effect of real option to the dynamic adjustment scheme is analyzed.It is found that real options will increase social benefit,reduce government subsidy and toll,influence the decision-making mechanism of government subsidy from two dimensions of marginal conversion rate and the rate of return.Furthermore,real options will affect the optimal contract adjustment scheme.The conclusion of the study provides an effective reference for government departments to determine and adjust government subsidies and concession prices during the operation of highway BOT projects.