nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2014‒03‒01
six papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. The Learning Process and Technological Change in Wind Power: Evidence from China’s CDM Wind Projects By Tian Tang; David Popp
  2. Investment under Threat of Disaster By Thomas Gries; Natasa Bilkic
  3. Risk Management and the Stated Capital Costs by Independent Power Producers By Bahman Kashi
  4. On the R&D giants' shoulders: Do FDI help to stand on them? By Sandro Montresor; Antonio Vezzani
  5. The social rate of discount, climate change and real options By Pasquale Lucio Scandizzo
  6. Le courage managérial: Entre morale et émotions By Michelle Harbour; Veronika Kisfalvi

  1. By: Tian Tang; David Popp
    Abstract: The Clean Development Mechanism (CDM) is a project-based carbon trade mechanism that subsidizes the users of climate-friendly technologies and encourages technology transfer. The CDM has provided financial support for a large share of Chinese wind projects since 2002. Using pooled cross-sectional data of 486 registered CDM wind projects in China from 2002 to 2009, we examine the determinants of technological change in wind power from a learning perspective. We estimate the effects of different channels of learning—learning through R&D in wind turbine manufacturing, learning from previous experience of installation, and learning through the network interaction between project developer and turbine manufacturer—on technological change, measured as reductions in projected costs or as increased capacity factor across CDM wind projects. While we find that a manufacturer’s R&D and previous installation experience matter, interactions between wind turbine manufacturers and wind project developer lead to the largest cost reductions. Whereas existing literature suggests that wind power firms can learn from the experience of other wind farm developers, our results indicate that wind power firms mainly learn from their own experience and that knowledge spillovers mostly occur within certain partnerships between wind project developer and foreign turbine manufacturers in China’s wind power industry.
    JEL: O33 O38 Q42 Q48 Q54 Q55
    Date: 2014–02
  2. By: Thomas Gries (University of Paderborn); Natasa Bilkic (University of Paderborn)
    Abstract: During the last 40 years the number and severity of economic, natural, and political disasters has significantly increased all over the world. Disasters are characterized by a highly uncertain frequency of occurrence and size of impact. Due to their relatively small probability, for a long time they were not regarded as an essential element of investment decisions. Although this has changed recently, especially in the context of specific applications in finance, a transfer to a general evaluation of disasters has not taken place yet. This paper shows how disastrous events of uncertain occurrence and uncertain size can be included in the most frequently used evaluation method, namely expected net present value (ENPV). We identify an Ito-Lévy Jump Diffusion process as an adequate stochastic process for this kind of phenomenon and determine how to account for such large uncertain events. We also illustrate that disregarding this phenomenon may easily lead to unprofitable investment behavior. Hence, disasters do have a huge impact on investment behavior and should be included into project evaluation.
    Keywords: disaster evaluation, large risk and uncertainty, non-marginal stochastic shocks, investment project evaluation
    JEL: D81 G11
    Date: 2014–02
  3. By: Bahman Kashi (Eastern Mediterranean University, Cyprus and Queen's University, Canada)
    Abstract: In this article we argue that the conventional financing and contractual arrangements in private power generation projects encourage the independent power producers (IPPs) to overstate the capital cost as a risk-mitigation strategy. Since the markup is only added to the capital cost, and not to the operating costs, it promotes the use of cheaper and less efficient power plants. The distortion in the choice of technology results in economic losses over the life of the plants. The findings of this research have important policy implications that can assist regulatory bodies, governments, and international financing agencies to adopt a more informed approach to the integration of private investment into the electricity generation capacity of developing countries.
    Keywords: IPP, PPA, privatization, power generation, electricity, risk management
    JEL: L94 D61 L33 L20
    Date: 2014–03
  4. By: Sandro Montresor (University of Bologna); Antonio Vezzani (JRC-IPTS)
    Abstract: The paper investigates the extent to which outward FDI affect the MNC's capacity of entering (and remaining in) the club of top R&D world investors, benefiting from performance gains in both financial and economic markets. By merging the European Industrial Research and Innovation Scoreboard with the fDi Markets dataset, we find supporting evidence. Increasing the number of FDI projects helps firms overcome the discontinuities that, in the distribution of R&D expenditures, separate the group of the largest world R&D investors from the top of them. The same is true for the number of FDI projects in R&D, which are also more important than greater FDI portfolios in becoming a top R&D spender. Furthermore, unlike FDI in general, more FDI in R&D guarantee firms to remain in this top club of firms as it increases their capacity of resisting competition for a place among the top R&D spenders. Results at the extensive margin (i.e. the number of FDI projects) are confirmed with respect to the scale of FDI projects (i.e. at the intensive margin). However, increasing their size is not enough to become one of the highest ranking R&D firms. Policy implications about the support to R&D internationalisation are drawn accordingly.
    Keywords: Foreign Direct Investments (FDI), Multinational Corporations (MNC), Research & Development (R&D).
    JEL: O32 F23 O33
    Date: 2014
  5. By: Pasquale Lucio Scandizzo (CEIS University of Rome "Tor Vergata")
    Abstract: This paper examines the controversial problem of the choice of the social discount rate in development projects, by focusing on the investment required to adapt to climate change, considering the threats to food security and the needs for human and natural capital, especially for developing countries. Because climate change introduces negative trends and time increasing volatilities both in production and in consumption, social rates of discount can only be estimated within a framework of dynamic uncertainty. For this purpose, climate change can be modeled as a twin stochastic process of the geometric Brownian motion variety, affecting both consumption and productive capacity. Unlike the case of deterministic neoclassical growth, and contrary to the usual estimates for project evaluation, the stochastic nature of climate changes links the social discount rate (SDR) to volatility in two distinct and important ways. On the side of consumption and growth, the SDR is reduced by the likely negative effects of climate change (CC) on growth and food security. It also becomes dependent on the fact that the volatility of growth favors the accumulation of precautionary savings and thus reduces the rate of fall of the value of consumption over time. On the side of production capacity, the SDR is also reduced by the negative effect of CC on the productivity of capital and by the fact that the opportunity cost of the displacement of private investment under dynamic uncertainty is lowered by the value of the options to invest when more information will be available.
    Keywords: social, discount, uncertainty, climate change
    JEL: H8 D1 Q5
    Date: 2014–02–18
  6. By: Michelle Harbour (Université du Québec (Outaouais)); Veronika Kisfalvi (HEC Montréal)
    Abstract: Ce document de travail pour objectif de montrer comment le gestionnaire engagé dans une décision courageuse régule ses émotions. À partir d’une recherche empirique réalisée auprès de gestionnaires ayant réalisé des projets de fusion d’entreprises, nous avons réalisé une validation exploratoire d’un cadre conceptuel développé à partir des écrits scientifiques sur les émotions. Notre recherche exploratoire a résulté en deux contributions. D’abord, le cadre conceptuel que nous avons utilisé nous a permis d’avoir une lecture novatrice du courage managérial en mettant en relief l’importance des stratégies de régulation des émotions sur soi en réponse à une situation risquée ou difficile qui requiert du courage managérial. À cet égard, le gestionnaire doit gérer une grande variété d’émotions positives et interreliées où une émotion positive peut aider à réguler une émotions négative. La seconde contribution de notre étude est de montrer les caractéristiques éthiques des gestionnaires contrairement à ce qui est fait dans les recherches actuelles où le focus est mis sur les comportements non éthiques. This working paper presents how a manager engaged in a courageous decision regulates his or her emotions. Through an empirical study conducted with top managers who have led merger projects, we carried out an exploratory validation of a conceptual framework developed from the literature on emotions. This exploratory validation has resulted in two major contributions. First, in a context requiring a high degree of courage, managers seem to mainly use emotion regulation strategies directed at the self. In this regard, the manager must deal with a great variety of interconnected positive and negative emotions where a positive emotion could help to regulate a negative one. Second, our study reveals managers' positive ethical characteristics, as opposed to much of the existing research which tends to focus on their unethical behaviours.
    Keywords: Managerial courage; emotions; emotion regulation strategies; merger projects.
    JEL: M10
    Date: 2014–02–20

This nep-ppm issue is ©2014 by Arvi Kuura. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.