Transit technology investment and selection under urban population volatility: A real option perspective

Document Type

Journal Article

Publication Date


Subject Area

place - urban, land use - urban sprawl, technology


Transit technology investment and selection, Population volatility, Real option approach, Net present value approach, Comparative static analysis, Urban spatial equilibrium


This paper addresses transit technology investment issues under urban population volatility using a real option approach. Two important problems are investigated: whichtransit technology should be selected and when should it be introduced. A real option model is proposed to incorporate explicitly the effects of transit technology investment on urban spatial structure in terms of households’ residential location choices and housing market. The trigger population thresholds for investing in a transit technology project and for shifting from a transit technology to another are explored analytically. Comparative static analyses of the urban system and transit technology investment are also carried out. It was found that (i) transit technology investment can induce urban sprawl; (ii) ignoring the effects of transit technology investment on urban spatial equilibrium can lead to a late investment; and (iii) there is a significant difference in the trigger population thresholds for transit technology shift estimated by the net present value approach and the real option approach.


Permission to publish the abstract has been given by Elsevier, copyright remains with them.


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