 ENTRY, EXIT AND SCRAPPING DECISIONS WITH INVESTMENT LAGS: A SERIES OF INVESTMENT MODELS BASED ON A NEW APPROACHSigbjørn Sødal University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara Abstract: Several entry-exit models under price uncertainty are discussed by a new markup approach to investment, starting with the classical model by Dixit (1989). The markup approach, introduced by Dixit et al. (1999), enables us to state the expected value of the firm in the entry-exit model as a function of a chosen pair of entry and exit trigger prices. The optimal policy appears by maximizing the value function with respect to the trigger prices. Extensions being discussed include endogenous production costs, diminishing production capacity over time, limits to the number of available switches, and various models with scrapping decisions and investment lags. The main new extension allows for an investment lag in the entry-exit-scrapping model by Dixit (1988). Implications of the investment lag are investigated by use of experimental data and empirical data from shipping. We also correct some results on investment lags from Bar-Ilan and Strange (1996). Keywords: irreversible investment; uncertainty; markup pricing; investment lags. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsbec:qt7wg8z42b Access Statistics for this paper More papers in University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara Contact information at EDIRC. |
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