Optimal Investment Timing and Size of a Logistics Park: A Real Options Perspective

Abstract

This paper uses a real options approach to address optimal timing and size of a logistics park investment with logistics demand volatility. Two important problems are examined: when should an investment be introduced, and what size should it be? A real option model is proposed to explicitly incorporate the effect of government subsidies on logistics park investment. Logistic demand that triggers the threshold for investment in a logistics park project is explored analytically. Comparative static analyses of logistics park investment are also carried out. Our analytical results show that (1) investors will select smaller sized logistics parks and prepone the investment if government subsidies are considered; (2) the real option will postpone the optimal investment timing of logistics parks compared with net present value approach; and (3) logistic demands can significantly affect the optimal investment size and timing of logistics park investment.

Evolution Model and Driving Mechanism of Urban Logistics Land: Evidence from the Yangtze River Delta

“…Spatial siting, functional area arrangement, distribution route planning, park scale and investment timing are the important factors affecting the high-quality development of logistics parks and they have become the focus of scholars' attention. For example, Xu [17] proposed a heuristic algorithm-based logistics park site selection model, Luo [18] created a two-stage layout method for the functional area of the logistics parks, Liang [19] proposed an optimization approach for the distribution path of the logistics park based on the improved artificial bee colony algorithm, and Zhang [20] analyzed the optimal investment time and scale of the construction of the logistics park from the perspective of real options.…”

Special Economic Zones in the Indonesia–Malaysia–Thailand Growth Triangle:

“…A logistics park is an important logistics facility that can significantly impact not only economic efficiency in the movement of goods and commodities (as discussed above) but also the environment. It can, for instance, reduce carbon dioxide emissions and air pollution by combining multiple distribution centers and logistic operators into a single park (Zhang et al 2017). There is a growing trend to introduce logistics parks in both the developed and developing countries.…”

Special Economic Zones for Shared Prosperity

“…It is suggested that the trade and investment facilitation cluster work together with relevant government authorities to promote the setting up of logistics zones equipped with storage and transport services, public facilities (for industry and commerce, taxation, customs, commodity inspection, banking, insurance, and other service facilities); and related facilities (with the office, accommodation, catering, and other services facilities). A logistics park can have a significant impact not only on economic efficiency in the movement of goods and commodities but also on the environment by reducing, for instance, carbon dioxide emissions, and air pollution through combining multiple distribution centers and logistic operators into a single park (Zhang et al 2017).…”