Optimal procurement and investment in new technologies under uncertainty

Malin Arve and Gijsbert Zwart

Journal of Economic Dynamics and Control, 2023, vol. 147, issue C

Abstract: We study a buyer’s optimal investment strategy for new technologies when costs evolve stochastically and are private information to the suppliers. In a real option setting, we show how the asymmetric information on the stochastic variables optimally distorts technology choice and investment timing. We find that with multiple technologies, asymmetric information may delay or speed up investment, compared to the first-best real option benchmark. We also suggest a payment structure that implements the buyer’s optimal investment timing as a Vickrey-type auction.

Keywords: Real option; Adverse selection; Dynamic contracting; Irreversible investment; Continuous time; Optimal stopping; Procurement; Principal-agent model (search for similar items in EconPapers)
JEL-codes: C73 D82 D86 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:147:y:2023:i:c:s0165188923000118

DOI: 10.1016/j.jedc.2023.104605

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