Simulation Model for Estimating Risk of Uncertainty on Return on Investments of Public Investments

Mr. István Takács; Mr. Beata Olga Felkai

doi:https://doi.org/10.51768/dbr.v11i1.111201003

Submit Manuscript Login / Register Subscribe

Home Page

Editorial Board Members

Mission, Aims & Scope

Current Issue

Simulation Model for Estimating Risk of Uncertainty on Return on Investments of Public Investments

István Takács, Beata Olga Felkai

https://doi.org/10.51768/dbr.v11i1.111201003

Author Details ( * ) denotes Corresponding author

1. * István Takács, Associate Professor, Faculty of Economics and Social Sciences, Szent István University, Gödöllö, Hungary

2. Beata Olga Felkai, Associate Professor, Károly Róbert College, Gyöngyös, Hungary

Analyzing an investment is usually not a difficult problem, based on the dynamic indicators of return of investments (i.e. NPV, IRR). However, it is not so simple if the aim of these investments is to prevent damage to economic objects, agricultural areas, cultural sites, which may be inflicted by unpredictable natural phenomena (i.e. floods). Since conventional methods are not practical in this case, a stochastic simulation model was developed based on the Monte Carlo method to estimate the risk of the return of these types of investments.
Stochaistic simulation models have proved that the issue of economic profitability can be raised in the case of public investments as well. The expected benefits of the investment determine whether it is justifiable to invest into blocking out negative impacts or other strategies are necessary to decrease their destructive effects. The research was supported by the Hungarian Scientific Research Fund (OTKA) No. K63231 research project.

Keywords

Uncertainty, Risk, Simulation Model, Externalities, Public Investment.

Brealey, M. and Myers, S.C. (1991), Principles of Corporate Finance, Fourth Edition, International Edition, 1991 McGraw- Hill, Inc. p.1175.
Gittinger, P.J. (1982), Economic Analysis of Agricultural Projects, EDI Series in Economic Development, Baltimor and London, p.445.
Halcrow, Water (1999), Hungary Flood Control Development and Rehabilitation – Draft Final Report, p.368.
Kaul, I., Conceição, P., Le Goulven, K. and Mendoza, R.U. (2003), Why do Global Public Goods Matter Today? In: Providing Global Public Goods, Edited by: Kaul, I., Conceição, P., Le Goulven, K. and Mendoza, R.U., Online: http://www.undp.org/globalpublicgoods/ globalization/pdfs/Overviews.pdf. [Accessed 12.4.2007].
Kaul, I. and Mendoza, R.U. (2006), Advancing the Concept of Public Goods, In: Providing Global Public Goods, Edited by: Kaul, I., Conceição, P., Le Goulven, K. and Mendoza, R.U. (2003), Online: http://www.undp.org/globalpublicgoods/globalization/pdfs/KaulMendoza.pdf. [Accessed 12.4.2007].
Samuelson, P.A. and Nordhaus, W.D. (1985), Economics, McGraw-Hill Inc. New York, 12th Edition.
Szlávik, L. (1999), Ideas on the Current Problems of Flood Defence in Hungary, Hidrológiai Közlöny, 79. évf. 4. pp.241-260.