Strategic real options

Aaron M. Kolb

Journal of Economic Theory, 2019, vol. 183, issue C, 344-383

Abstract: I study hidden investment in quality in a dynamic persuasion game. A seller, such as a project manager or startup company, controls an asset and wants to convince a potential buyer, such as an acquiring company or a regulator, that it has high quality. The buyer observes exogenous news with quality-dependent drift and holds a call option on the asset; the seller is privately informed about quality and can wait (at a flow cost), upgrade (at a fixed cost) or exit the market.

Keywords: Real options; Persuasion games; Hidden investment; Continuous time; Resetting barrier; Skew Brownian motion (search for similar items in EconPapers)
JEL-codes: C72 C73 D82 D83 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:183:y:2019:i:c:p:344-383

DOI: 10.1016/j.jet.2019.05.008

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