Real Options in a Ramsey style Growth Model

Hanno Dihle ()
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Hanno Dihle: Institute for Economic Research, University of Freiburg

No 32, Discussion Paper Series from Department of International Economic Policy, University of Freiburg

Abstract: This paper studies the aggregate implications of microeconomic investment irreversibility and idiosyncratic uncertainty in a simple growth model by highlighting real option effects. We endogenize the drift rate of real option by connecting it to the state of the economy. Thereby, we extend the analysis of the optimal capital accumulation policy in the firm sector and show the different implications of idiosyncratic and aggregate uncertainty on growth dynamics.

Keywords: Irreversible investment; Idiosyncratic uncertainty; real options; growth (search for similar items in EconPapers)
JEL-codes: D81 E10 E22 O40 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-12, Revised 2015-12
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Persistent link: https://EconPapers.repec.org/RePEc:fre:wpaper:32

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