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Investment Appraisal in the Public Sector – Incorporating Flexibility and Environmental Impact

Nils Lindvall1 and Aron Larsson2
1. Department of Information and Communications Systems, Mid Sweden University, Sundsvall, Sweden
2. Department of Computer and Systems Sciences, Stockholm University, Kista, Sweden

Abstract—Real asset investment appraisal in the public sector often requires that objectives beyond return on investment are taken into account. Recently, environmental impact and climate change issues are often used to motivate investments, but despite this formal approaches are seldom being used for this purpose. In this paper we investigate the application of real option valuation and multi-criteria decision analysis in the appraisal of a public sector investment in the form of a logistics park, aimed to reduce the emissions from cargo traffic. Although this appraisal approach captures important features of the real situation in terms of that flexibility is considered and multiple criteria is taken into account, the requirement for the information needed for the model led to a need to use best-estimates, and a systematic approach to sensitivity analysis is therefore desired.

Index Terms—Investment appraisal, public sector, decision analysis, real options

Cite: Nils Lindvall and Aron Larsson, "Investment Appraisal in the Public Sector – Incorporating Flexibility and Environmental Impact" Journal of Advanced Management Science, Vol. 5, No. 3, pp. 182-189, May 2017. doi: 10.18178/joams.5.3.182-189
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