Bidding for Antamina: Incentives in a Real Option Context

Moel, Alberto and Tufano, Peter (1999) Bidding for Antamina: Incentives in a Real Option Context. In: Brennan, Michael J. and Trigeorgis, Lenos, (eds.) Project Flexibility, Agency and Competition. Oxford University Press USA, pp. 128-150. ISBN 978-0195112696

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This chapter studies the bidding for a copper mine that was offered for sale by the Peruvian government as part of the country's privatization program. The mine itself had a valuable real option component, in the form of the right to develop the mine after completing exploration, which we analyze using Monte Carlo methods. The novel aspect of the transaction was the type of bid requested by the Peruvian government, which essentially requested bidders to state both the premium that they would pay and exercise price they would set for this real option. This structure gave rise to incentives which affected the amount that firms would offer, their preferences between bidding premium and exercise price, the identity of bidders, the likelihood of ultimate development, and the likelihood of ex post renegotiation of the contract.

Item Type: Book Section
Keywords: copper mining; real options; finance
Subject(s): Finance
Date Deposited: 30 Aug 2012 08:42
Last Modified: 27 Feb 2017 16:40
Funders: N/A

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