Escalation of commitment (EOC) is a common behavior among investors who receive negative feedback (NF) in public-private partnership (PPP) projects, and this behavior typically leads to sizable losses. Recognizing this, investors set a mental threshold and track investments for escalation. Once losses reach the threshold, investors will terminate the escalation behavior, namely, they will transfer projects to governments to obtain compensation or residual asset value. This paper analyzes the maximum amount of NF that investors can sustain based on a belief-adjustment model, followed by the analysis of the greatest loss degree. Then, a threshold model for EOC is constructed using real option thinking. Different from the usual judgment criteria of the traditional option method, the threshold is less than zero in the EOC scenario. The results show that the threshold correlates with the initial generative cognition, the sunk cost level, the degree of the government guarantee and investors’ behavioral preferences as well as with total investment and return on investment. These findings serve as a reference for governments to de-escalate investors’ commitment in PPP projects.

中文翻译：

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实物期权思维在PPP项目中投资者的承诺评估价值

承诺升级（EOC）是在公私合营（PPP）项目中获得负面反馈（NF）的投资者中的常见行为，这种行为通常会导致可观的损失。认识到这一点，投资者设定了心理门槛并跟踪投资的升级。一旦损失达到阈值，投资者将终止升级行为，即他们将项目转移给政府以获得补偿或剩余资产价值。本文基于信念调整模型分析了投资者可以承受的最大NF数量，然后分析了最大损失程度。然后，使用实物期权思维构造了一个EOC的阈值模型。与传统期权方法的通常判断标准不同，在EOC方案中，阈值小于零。结果表明，该阈值与初始生成认知，沉没成本水平，政府担保的程度和投资者的行为偏好以及总投资和投资回报率相关。这些发现可为政府降低投资者对PPP项目的承诺提供参考。