Real options valuation: The case of pedestrian paths in Madeira island

• Autor(a) principal: Marques, Margarida Silva
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/30574
• topic: Opções reais -- Real options; Turismo -- Tourism; Pedestrian paths; Uncertainty; Minimum revenue guarantee; Collar contract; Opções reais -- Real options; Percursos pedestres; Incerteza

Nature-based tourism developed on pedestrian paths is a growing tourism sector. However, its unregulated use can lead to irreversible consequences in economic and environmental terms, meaning that attracting visitors implies sustainable practices, investment in tourist infrastructures, and covering the costs of local conservation. Tourist taxation is considered an effective instrument, but the acceptance of its implementation depends on the preferences and the tourists’ acknowledgement of its application, who are more aware of environmental problems. This study aims to assess the feasibility of the pedestrian paths projects in Madeira Island through the real options approach, considering the number of users per route as the main source of uncertainty for the project. In the first phase of the evaluation, we assume that there is a Minimum Revenue Guarantee and, later on, a collar contract, finite or perpetually established between the government and potential promoters. We intend to understand the repercussions on the investor's decision with the limitation of the subsidy, associated with a maximum number of users, and with the changes in the duration of the contract. Both contracts aim to minimize investors’ risk, but the second one stands out by putting the issue of sustainability of pedestrian paths into the analysis. Based on the results, from the policymakers' point of view, if the objective is to encourage immediate investment in the Levada das 25 Fontes and Levada do Risco projects, then they should offer a collar contract to the promoters, in which the incentive is greater the greater the contract duration.