An investigation of private public partnerships using real options analysis

<p>This thesis develops a model that investigates aspects of New Zealand’s largest public-private partnership project, the rollout of Ultra Fast Broadband. The model features four cities with different demand and construction-cost characteristics. It is used to study the different choices of the private party (Chorus) and the public party (Crown Fibre Holdings (CFH)). Using a real options approach, we identify two sorts of potential conflicts between the two parties: a timing conflict about the number of cities the two parties would like to develop in each period and a sequencing conflict about the order in which the UFB network is rolled out in different cities. Inspired by the incomplete contracting and information asymmetry literatures, we introduce several incentive schemes (including four subsidy schemes and two fine schemes) that help manage the possible conflicts. We compare both their ability to reduce the conflicts and their sensitivity to the model’s underlying parameters. Overall, there are four main findings. First, the magnitude of the conflict is a non-monotonic function of the inter-city demand differences and the inter-city construction-cost differences; it is an increasing function of the ratio of consumer surplus to producer surplus and of demand volatility. Second, a demand-dependent lump sum subsidy has the best performance among all included incentive schemes in controlling the possible conflicts. Third, the conflict level becomes quite sensitive to the subsidy scheme in two cases. A) When either the inter-city demand differences or the inter-city construction-cost differences turn out to be modest; B) When either the ratio of consumer surplus to producer surplus or demand volatility turns out to be large. The above result may provide some suggestions in managing the optimal subsidy. Last but not least, the requirement that Chorus is willing to participate in the partnership means that the fine schemes are generally outperformed by the subsidy schemes. Relating our findings to the undertaking UFB project, we provide CFH with several practical suggestions that may improve its management of possible conflicts.</p>

An investigation of private public partnerships using real options analysis

<p>This thesis develops a model that investigates aspects of New Zealand’s largest public-private partnership project, the rollout of Ultra Fast Broadband. The model features four cities with different demand and construction-cost characteristics. It is used to study the different choices of the private party (Chorus) and the public party (Crown Fibre Holdings (CFH)). Using a real options approach, we identify two sorts of potential conflicts between the two parties: a timing conflict about the number of cities the two parties would like to develop in each period and a sequencing conflict about the order in which the UFB network is rolled out in different cities. Inspired by the incomplete contracting and information asymmetry literatures, we introduce several incentive schemes (including four subsidy schemes and two fine schemes) that help manage the possible conflicts. We compare both their ability to reduce the conflicts and their sensitivity to the model’s underlying parameters. Overall, there are four main findings. First, the magnitude of the conflict is a non-monotonic function of the inter-city demand differences and the inter-city construction-cost differences; it is an increasing function of the ratio of consumer surplus to producer surplus and of demand volatility. Second, a demand-dependent lump sum subsidy has the best performance among all included incentive schemes in controlling the possible conflicts. Third, the conflict level becomes quite sensitive to the subsidy scheme in two cases. A) When either the inter-city demand differences or the inter-city construction-cost differences turn out to be modest; B) When either the ratio of consumer surplus to producer surplus or demand volatility turns out to be large. The above result may provide some suggestions in managing the optimal subsidy. Last but not least, the requirement that Chorus is willing to participate in the partnership means that the fine schemes are generally outperformed by the subsidy schemes. Relating our findings to the undertaking UFB project, we provide CFH with several practical suggestions that may improve its management of possible conflicts.</p>

How excessive endogenous money supply can contribute to global financial crises

Financial crises have become a challenge for sustainable growth, given the frequency and intensity of crisis shocks and their destructive consequences in recent decades. The paper aims to study how the endogenously generated excess money supply can contribute to global financial crises. The creation of money supply is examined from the perspective of the Quantity Theory of Money (QTM) and endogenous money, namely Horizontalism, Structuralism, and Modern Money Theory. Given that prices are not flexible in the short term, increased volatility in the money market prevents a short-term ready balance between money supply and output. The overall result of money supply accommodation can be unpredictable if monetary authorities and commercial banks do not pool their interests, and the money demand volatility becomes extremely high. The study of the correlation between money supply and output allowed distinguishing between neutral countries in the creation of extra liquid assets and countries that can be a potential trigger for excessive money supply volatility. Monitoring the dynamics of M3 and GDP showed that before the significant crisis periods of 1997–1998, 2007–2008, and 2019–2020, the growth of money supply was more than 8%. The established critical level confirms the potential contribution of endogenously created excess money supply to global financial crises.

Prospects for Energy Demand Management in Russian Regions

In order to improve the energy efficiency in industrialised countries, energy demand management technologies are being introduced. In Russia, energy consumption is characterised by high natural gas usage. A decrease in demand volatility leads to the reduction of energy costs for industrial consumers. These factors indicate the feasibility of electricity and natural gas demand management. Simultaneously, Russian regions significantly differ in terms of the prospects for introducing integrated demand management. To examine the problem, we used statistical analysis, mathematical modelling and a method for constructing perceptual maps. Parameters of electricity and natural gas demand management in Russian regions were examined. As a result, we developed a methodology to assess the possibility of implementing energy demand management in various entities. This method is based on a system of indicators considering absolute and relative density of regions’ electricity and natural gas demand, industrial energy consumption, and natural gas used to generate electricity. The analysis of the relevant indicators allowed us to construct energy demand volatility maps and a matrix indicating the effectiveness of proposed management tools. The research findings can be used when developing targeted programmes for energy demand management at the regional and federal levels.

Forecasting the inventory levels of an industrial enterprise in conditions of demand volatility

The aim of the article is to provide tools for obtaining reliable forecasts of the level of inventories of the enterprise in conditions of volatility in demand for products. Most types of demand for industrial products are unstable, so it is important to form stocks based on demand forecasts to reduce logistics risks. The results of the analyses. Analytical tools for forecasting maximum level of inventories in conditions of volatility of demand for products of machine-building enterprises have been developed, which provides an opportunity to obtain the most reliable sales forecast and estimate the maximum required stocks for a certain type of demand. The method, which is obtained by analytical tools, is based on a three-stage algorithm: a) identification of trends in a time series of sales; b) obtaining optimal sales forecasting models; c) plotting of interval forecasts of product sales and risk assessment of the formation of its maximum stocks. The developed methodology identifies logistics risks, which depend on sales forecasts, for nine machine-building enterprises of Ukraine. A method for statistical assessment of logistics risks of machine-building enterprises by confidence intervals has been developed, in which maximum stocks are determined by two confidence intervals of sales forecasts, and the risk of error is associated with the appropriate levels of reliability of these intervals. It is proposed to build the upper limits of two confidence intervals, for example, 95% and 99%, according to the forecast inventory level estimates, and to consider them as maximum inventory level estimates with corresponding probabilities. The risk of stock shortages is defined as the probability of going beyond the upper limit of the corresponding interval. It is proved that the dynamics of monthly or quarterly sales of enterprises can be typed by four patterns: the presence of seasonal fluctuations and trends; the presence of purely seasonal fluctuations without a pronounced trend; no seasonal fluctuations, but the presence of a trend; no seasonal fluctuations and trends. Conclusions and perspectives for further research. It is proved that the volatility of monthly or quarterly sales volumes of enterprises can be typed by four patterns: 1) the presence of seasonal fluctuations and trends; 2) the presence of purely seasonal fluctuations without a pronounced trend; 3) no seasonal fluctuations, but the presence of a trend; 4) no seasonal fluctuations and trends. Based on this, the theoretical and methodological principles and analytical tools for forecasting the maximum stocks of an industrial enterprise in conditions of demand volatility were improved. Keywords: seasonality, volatility, inventory level forecasting, maximum stocks, demand forecasting.

Demand Volatility, Adjustment Costs, and Productivity: An Examination of Capacity Utilization in Hotels and Airlines

Measures of productivity reveal large differences across producers even within narrowly defined industries. Traditional measures of productivity, however, will associate differences in demand volatility to differences in productivity when adjusting factors of production is costly. I document this effect by comparing the influence of demand volatility on capacity utilization in a high (hotels) and low (airlines) adjustment cost industry. Differences in annual demand volatility explain a large share of the variation in occupancy rates of hotels at the metro area–segment-year level. In contrast, differences in annual demand volatility have no effect on load factors of airlines at the destination-airline-year level. (JEL D24, L83, L93)

Study on Coordination and Optimization of Contract Farming Supply Chain Based on Uncertain Conditions

As the transaction subject of contract farming, agricultural products are featured with a long production cycle and a short sales cycle, just like other perishable commodities. In the process of executing a contract, both the company and the farmer are running the risk of great uncertainty. This paper studies the coordination of agricultural supply chain in terms of the uncertainty of agricultural output and market demand. First of all, the random output volatility factor and the market demand volatility factor as two random variables are used to represent the uncertainty of the agricultural output and market demand, and revenue functions are set up, respectively, for the company and the farmer with the objective of maximizing expected returns. The theoretical derivation of these revenue functions proves that there is an optimal targeted yield in a centralized decision-making supply chain system and a single optimal solution that maximizes farmers’ revenue can be obtained in a decentralized one, but the centralized decision-making supply chain is superior to the decentralized and uncoordinated counterpart for overall benefit. Secondly, a revenue-sharing-plus-margin contract mechanism is proposed to coordinate income distribution between the two parties of the supply chain through the revenue-sharing coefficient and margin. Thirdly, calculation examples are given and solved by MATLAB based on the assumption that both the agricultural output volatility factor and the market demand volatility factor are uniformly distributed, and the theory and result are then verified consistently. Finally, the numerical analysis of the coordination mechanism of the revenue-sharing coefficient and the margin on both sides of the supply chain provides an optimal value range so that Pareto improvement on the company’s and the farmers’ income can be achieved.