Abstract
Public procurement using PFI method has enjoyed growing demand in the current years. Although PFI basically can be basically characterized by private initiative, government supportshould be taken into considerationf or uncertaintyt hat privates ector could not hold.
This paper did survey on several government supports, such as grant, shadow toll, etc., and developed discussion in evaluating them as “real options.” The arguments are that the support can be decomposed into call or put options held by both government and private sectors. Then, option pricing theory can be applied to evaluate the value of option. The paper also referred to the effect of support from improvement in cash-flow expectation and reduction in its variance. By considering this, it was discussed that government support should be implemented by considering the characteristics of cash-flow profile of individual PFI projects.
