Bidding for the Antamina Mine: Incentives in a Real Option Context

Moel, Alberto and Tufano, Peter (2000) Bidding for the Antamina Mine: Incentives in a Real Option Context. In: Grenadier, Steven, (ed.) Game Choices: The Intersection of Real Options and Game Theory. Risk Books, London, pp. 197-220. ISBN 9781899332793

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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: Mining; Bidding; finance
Subject(s): Finance
Date Deposited: 23 Aug 2012 09:51
Last Modified: 19 Sep 2018 10:44
Funders: N/A

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