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

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

István Takács, Beata Olga Felkai

Vol 11 , Issue 1 , January - June 2010 | Pages: 29-42

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.

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