Evaluation of a Taxi Sector Reform: A Real Options Approach

This paper applies the real options methodology to estimate the impact of the restructuring measures in the taxi sector in Barcelona in 1995. These measures included among other things the establishment of a fixed price for the license as a way to reduce the uncertainty on the future performance of the sector. We construct a model that contains the uncertainty in income as well as costs of the taxi driver using both individual and aggregate data. We also consider the option to sell the license at each point in time. We show that such reform can increase the net surplus value for taxi drivers with respect to a liberalized market in this sector. We compute the surplus value as a result of this reform to be around € 80,000. This value is shown to be robust to an exhaustive sensitivity analysis.

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