Information Revelation, Incentives, and the Value of a Real Option

Brian Mittendorf ()
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Brian Mittendorf: School of Management, Yale University, New Haven, Connecticut 06520-8200

Management Science, 2004, vol. 50, issue 12, 1638-1645

Abstract: The real options approach to capital budgeting focuses on valuing benefits of project flexibility. This paper presents an incentive consideration in such valuation. Operating flexibility not only allows a firm to change course in response to new information, but also allows interested observers to make inferences based on the change in course (or lack thereof). Such information conveyance through refined operating choices can alter observers' incentives. As a result, an option to delay may prove valuable because it allows a firm to prolong informational advantages.

Keywords: real options; incentives; information revelation (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:12:p:1638-1645

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