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Pricing Related Projects

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Coping with Uncertainty

Part of the book series: Lecture Notes in Economics and Mathematical Systems ((LNE,volume 581))

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Abstract

This paper deals with project evaluation from a portfolio perspective. The chief motivation stems from pricing bundles of related projects, all affected by uncertainty, when markets are imperfect or absent.

Novelties come by construing single projects as “players” of a transferableutility, stochastic, cooperative game. Stochastic programming then provides statedependent Lagrange multipliers associated to coupling constraints. Granted concave payoff functions, these multipliers not only emulate market clearing and formation of contingent, Arrow-Debreu prices; they also generate core solutions and project evaluations.

Thanks are due Finansmarkedsfondet, Norges Bank and Ruhrgas for financial support — and University of Manchester UK for great hospitality. This paper was first drafted at the economics department there. The research was also supported by the Norwegian Research Council under its RENERGI program.

Research supported in part by a grant from the Natural Sciences and Engieering Research Council of Canada. We thank Bjørn Sandvik and the referee for valuable comments.

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Authors and Affiliations

  1. Department of Economics, University of Bergen, 5007, Norway

    S. D. Flam

  2. School of Business Administration, Dalhousie University, Halifax, Nova Scotia, Canada, B3J 3J5

    H. I. Gassmann

Authors
  1. S. D. Flam
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  2. H. I. Gassmann
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© 2006 Springer-Verlag Berlin Heidelberg

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Flam, S.D., Gassmann, H.I. (2006). Pricing Related Projects. In: Coping with Uncertainty. Lecture Notes in Economics and Mathematical Systems, vol 581. Springer, Berlin, Heidelberg . https://doi.org/10.1007/3-540-35262-7_17

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