Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE credits
With accumulation of sovereign debt in many large OECD countries it seems that attention is
heightened on how to manage public resources more effectively. High levels of sovereign
debt are partly related to the aftermath of the latest financial crisis, where resolution for many
big economies was to intervene and use public resources to put an end to the expansion of the
Public real estate is one of those resources, which’s efficient management has high
importance on general public sector efficacy. It seems that governments around the world
have a way to go toward efficiency in public real estate management. There seem to be rather
wide differences in management practices and quality.
This thesis is an attempt to quantify some choices Estonian government could take in terms of
its public real estate management. Four different scenarios are compared and Monte Carlo
Simulation tool is used for that purpose. Two of the scenarios are related to private sector
involvement and two are not. Privatization of public assets does not only mean cashing out for
the government. It has wider consequences by introducing market forces where they weren’t
One of the most important points of interest in this thesis is what effect can market forces and
change in incentives have on public real estate management. There can be both, positive and
negative effects, but which ones would prevail? The model built during the process of the
thesis tries to measure those effects with aggregate net present value and its volatility by
looking at 30 years ahead.
Simulation analyses is used to vary input variables in the range that seems to be supported by
the observations made in the literature and in some cases, where data is not available, also
according to more subjective view that of the author’s. As input and their characteristics are
different for scenarios, it is of interest to document how do the main outputs, mean NPV and
its volatility, vary along with inputs.
public real estate management, incentives, Monte Carlo Simulation analyses, securitization, sale & leaseback, agency theory, status quo bias.