645489900

Texas Transportation Institute

NTL-ECONOMICS AND FINANCE-ECONOMICS AND FINANCE ; NTL-ECONOMICS AND FINANCE-Funding ; NTL-LAWS AND REGULATIONS-State Laws and Regulations ; NTL-LAWS AND REGULATIONS-Transit Laws and RegulationsNTL-PLANNING AND POLICY-Land Use ; NTL-PLANNING AND POLICY-Transit Planning and Policy ;

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Capital-intensive transit projects rely on strong public support and availability of funds. While the general

public has become a strong advocate for transit systems, budget shortfalls and financial constraints are still

resulting in delays in project delivery. In such business environment, the public sector has an opportunity to

partner with the private sector to deliver and operate needed infrastructures. In public-private arrangements,

the private sector typically is unwilling to accept the system ridership risk, making such projects financially

unfeasible. However, transit projects undoubtedly create value that is not internalized by the developer. The

completion of a transit system not only increases the values of properties in the affected area, but also

brings incremental tax revenue to the public sector. Thus, some of this newly created value can be shared

with the private sector to make the project financially feasible. The objective of this paper is to develop a

method for designing externality-based option and a model for its valuation. The proposed valuation model

is based on the concept of auctions, where the price-jump results from the introduction of the new transit

system. The numerical example results show that externality-based option could reduce private sector risk

and add value to the private developer, making transit project more attractive.

US Transportation Collection

10727