Time-to-build, regulation, and investment

Haejun Jeon

European Journal of Operational Research, 2024, vol. 319, issue 3, 999-1019

Abstract: This study investigates the effects of uncertainty in time-to-build and regulation, which hinders immediate revenue generation after investment, on a firm’s optimal investment decision. We show that in the absence of regulation, uncertainty in time-to-build always accelerates investment and enhances pre-investment firm value. We also show that in the absence of time-to-build, uncertainty in regulation can mitigate the distortion of investment induced by regulation. Furthermore, in the presence of both time-to-build and regulation, there can exist harmless regulation that does not induce any distortion in the investment decision and does not harm firm value. Lastly, in the presence of both time-to-build and regulation, not only uncertainty in time-to-build but also its presence can accelerate investment.

Keywords: Time-to-build; Investment lags; Regulation; Deregulation; Real options (search for similar items in EconPapers)
JEL-codes: D25 G31 G38 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:319:y:2024:i:3:p:999-1019

DOI: 10.1016/j.ejor.2024.07.037

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