Risk Evaluation of Social Decision Process: A Two-Stage Auction Game Model for Japanese Urban Redevelopment Procedure
Under the scheme of Japanese City Renewal Law (JCRL), the cost of urban redevelopment project has been financed by the revenue from selling the reserved floor secured beforehand in the redeveloped building. Since the outcome of whether or not the reserved
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Abstract Under the scheme of Japanese City Renewal Law (JCRL), the cost of urban redevelopment project has been financed by the revenue from selling the reserved floor secured beforehand in the redeveloped building. Since the outcome of whether or not the reserved floor can be sold is unforeseeable, entities for redevelopment are faced with the risk for project financing. Traditional risk evaluation has just focused on the risk inherent in the project that is carried out by a single entity and whose future returns are uncertain. On the contrary, we focus on the risk of urban redevelopment project in which plural decision-makers are involved and whose future outcome becomes uncertain since it depends on the decisions made by other decision-makers involved. Defining the risk for the entities as the probability that the entities suffer a loss and formalizing urban redevelopment procedure as a two-stage auction game, we have demonstrated that we can evaluate numerically the actual amount of risk the entities are going to bear in the project by using hypothetical examples. To give more reality, we also show an application of our model to the actual instance of urban redevelopment project that was broken down to produce a huge amount of loss and see whether our model can infer its amount of loss. Keywords Risk evaluation • Urban redevelopment procedure • Game theory • Auction model • Bankruptcy • Japanese City Renewal Law • Social decision process
S. Saito () Faculty of Economics, Fukuoka University, Fukuoka, Japan Fukuoka University Institute of Quantitative Behavioral Informatics for City and Space Economy (FQBIC), Fukuoka, Japan e-mail: [email protected] M. Imanishi Department of Business and Economy, Nippon Bunri University, Oita, Japan e-mail: [email protected] K. Yamashiro • M. Iwami FQBIC, Fukuoka, Japan e-mail: [email protected]; [email protected] © Springer Science+Business Media Singapore 2017 H. Shibusawa et al. (eds.), Socioeconomic Environmental Policies and Evaluations in Regional Science, New Frontiers in Regional Science: Asian Perspectives 24, DOI 10.1007/978-981-10-0099-7_30
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1 Introduction Under the scheme of Japanese City Renewal Law (JCRL), the cost of urban redevelopment project has been financed by the revenue from selling the reserved floor secured beforehand in the redevelopment building. Since the outcome of whether or not the reserved floor can be sold is unforeseeable, entities for redevelopment are faced with the risk for project financing. As seen in financial engineering studies such as DDCF (dynamic discounted cash flow) and real options (See, e.g., Kariya et al. (2003), Kawaguchi (2003), and Trigeorgis (1996)), researches on risk evaluation traditionally have been focusing on the risk entailed by the project that is carried out by a single entity and whose future returns are uncertain. On the contrary, in this study we focus on the risk of urban redevelopment project in which plural decision-makers are involved and whose future ou
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