The Challenges of Regulation Using Real Options

16 Pages Posted: 11 Mar 2008

Date Written: February 2008

Abstract

The regulation of infrastructure by the ACCC and other economic regulators in Australia is based around net present value estimation techniques. Recently, Monkhouse (2007), suggested that real options valuation would provide better incentives for investment in infrastructure, but did not elucidate how a regulatory system based on real options valuation should operate. This paper endeavours to sketch the outlines of such a system, and finds that it has considerable promise as an alternative to the status quo, provided an appropriate technique for addressing monopoly rents can be developed.

Keywords: Real Options, Regulation, Railways

JEL Classification: G12, L51, L92

Suggested Citation

Wills-Johnson, Nick, The Challenges of Regulation Using Real Options (February 2008). Available at SSRN: https://ssrn.com/abstract=1104947 or http://dx.doi.org/10.2139/ssrn.1104947

Nick Wills-Johnson (Contact Author)

DBP ( email )

PO Box Z5267
St Georges Terrace
Perth, 6831
Australia

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