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| Author: | Alleman, J. Rappoport, P. |
| Title: | Modelling Regulatory Distortions with Real Options |
| Journal: | Engineering Economist
2002 : VOL. 47:4, p. 390-417 |
| Index terms: | OPTIONS MODELS TELECOMMUNICATIONS INDUSTRY |
| Language: | eng |
| Abstract: | This paper uses real options analysis to address issues of regulation that have not been previously quantified. The authors show that regulatory constraints on cash flow have an impact on investment valuations in the telecommunications industry. Specifically, a model is developed to estimate the cost of regulation for broadband services. The authors show that the cash flow constraints and the inability to delay and abandon has a significant cost. Because some costs are not recognized in a static view of the world, this failure to recognize the operation and implications of non-flexibility by regulators (which can be modeled by real options methods) will lead to a reduction in company valuations which in turn will lead to a reduction in economics welfare. |
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