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California Management Review
California Management Review is a premier academic management journal published at UC Berkeley
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Article Information
Valuing Infrastructure Investment: An Option Games Approach
Smit, Han T.J., and Lenos Trigeorgis
51
/
2
(
Winter
2009
):
79
-
100
To understand the recent trend toward privatization of infrastructure assets (e.g., airports), this article proposes a valuation methodology based on real options and game theory analysis that enables assessing when investors might overpay for infrastructure assets over standard discounted cash flow methods and when a premium is justified for their operating flexibility or strategic growth option value. While some infrastructure asset acquisitions may involve financial transactions whose value derives primarily from their expected cash flows, many of these infrastructure investments provide a platform and create the strategic context within which the firm can grow.